Apollo Solar

Key Federal Solar Tax Info from Apollo Solar Comapny

Key takeaways

  • In 2022, the ITC allows both homeowners and businesses to claim 30 percent of their solar system costs from your taxes.
  • The 30 percent tax credit will last for 10 years until 2033, at which point it will drop to 26 percent.
  • The credit rolls over as long as the ITC is in effect, so you don’t have to have enough tax liability to use it all in one year.
  • You must own your solar system to take advantage of the ITC – if you signed a solar lease or PPA, you won’t receive this benefit.
  • Use the Get Free Quote button to have a custom proposal built for your home and see how much you can save by going solar.

What to know about the federal solar tax credit

The investment tax credit (ITC), also known as the federal solar tax credit, allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The 30 percent tax credit will be available until 2033, at which point it will drop to 26 percent. The ITC applies to both residential and commercial systems, and there is no cap on its value. 

What is the Federal Solar Investment Tax Credit

The ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. Thanks to the popularity of the ITC, and its success in supporting the United States’ transition to a renewable energy economy, Congress has extended its expiration date multiple times, including most recently in August 2022 to extend the ITC at 30 percent for 10 additional years. Now, the solar investment tax credit is available to homeowners in some form through 2034. Here’s a timeline of the ITC:

  • 2020 – 2021: owners of new residential and commercial solar could deduct 26 percent of the cost of the system from their taxes.
  • 2022 – 2032: owners of new residential solar can deduct 30 percent of the cost of the system from their taxes. Commercial solar systems will also be eligible for 30 percent until 2025, at which point the U.S. Department of Treasury will determine if the ITC will continue for commercial systems.
  • 2033: owners of new residential solar can deduct 26 percent of the cost of the system from their taxes.
  • 2034: owners of new residential solar can deduct 22 percent of the cost of the system from their taxes.
  • 2035: there is no federal credit for residential solar energy systems starting this year.

UPDATE: Congress passed the Inflation Reduction Act, which is why the ITC jumped back to 30 percent through 2032. Importantly, any system installed in 2022 qualifies for the 30 percent tax credit, even if it was installed before the Inflation Reduction Act was passed.

How the solar tax credit works

As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect (so, through 2034 for residential systems as it stands today). However, remember that if you sign a lease or power purchase agreement (PPA) with a solar installer, you are not the owner of the system, and therefore cannot claim the tax credit. Lastly, it’s important to note that there is no income limit on the ITC program, so taxpayers in all income brackets may be eligible.

Solar tax credit eligibility checklist for 2022

If you’re not sure the ITC applies to you and your home, here is a checklist of criteria to keep in mind: 

  • Your solar photovoltaic (PV) system was installed between January 1, 2006 and December 31, 2034. 
  • Your solar PV system was installed on your primary or secondary residence in the United States. 
  • For an off-site community solar project, the electricity generated is credited against, and does not exceed, your home’s electricity consumption. The IRS allows a taxpayer to claim a section 25D tax credit for purchasing a portion of a community solar project. 
  • You own the solar PV system, meaning you purchased it outright or financed it with a loan. You did not sign a lease or PPA. 
  • Your solar PV system is new or being used for the first time—the credit can only be claimed on the original installation of the solar equipment. For instance, if you bought a house that came with a solar system already installed, you would not be eligible for the credit.

Whats covered by the tax credit?

Homeowners who leverage the 30 percent ITC can plan to see the following covered: 

  • Cost of solar panels
  • Labor costs for installation, including permitting fees, inspection costs, and developer fees 
  • Any and all additional solar equipment, like inverters, wiring, and mounting hardware 
  • Home batteries charged by your solar equipment
  • Sales taxes on eligible expenses   

When and for how long can I claim the solar tax credit?

f you’re eligible for the ITC, but you don’t owe any taxes during the given calendar year, the IRS will not refund you with a check for claiming the credit. The 30 percent ITC is not refundable. However, the ITC can be carried forward as long as it remains in effect (i.e., through 2034 for residential systems as it stands today). Therefore, if you have a tax liability next year, but don’t have any this year, you can still claim the credit.

How do I claim the federal solar tax credit?

You claim the investment tax credit for solar when you file your yearly federal tax return. If you have an accountant, remember to let them know you’ve gone solar in the past year, or if you file your own taxes, simply use this step-by-step guide on how to claim the solar ITC.