In this guide, you’ll learn:
- What is Federal Solar Tax Credit
- How Much is the tax credit
- How to be eligible
In this article we will explore one of the most popular Fedral Solar Incentives for 2024; The Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC) or the residential clean energy credit. This credit is a major incentive for homeowners and businesses in the United States to install solar energy systems. As of 2024, this tax credit allows you to recoup 30% of the cost of installing a solar power system at your residential property. There’s no dollar limit on the credit, and it covers both the cost of the solar panels and additional equipment such as inverters, wiring, and mounting hardware, as well as labor costs for installation, permitting, and inspection fees. Notably, energy storage devices that are powered exclusively by the solar panels, with a capacity rating of at least 3 kilowatt-hours, also qualify.
What amount to expect
This 30% tax credit is available for systems placed in service from 2022 through 2032. In 2033, the credit rate will decrease to 26%, and in 2034, it will further reduce to 22% before expiring in 2035. It’s important to note that the solar tax credit is non-refundable, meaning it can only reduce your tax liability to zero, but if the credit exceeds your tax bill, the excess amount can be carried forward to the next tax year.
How to be eligible?
Eligibility for the federal solar tax credit requires that the solar system be installed at your primary or secondary residence in the U.S., and you must own the system outright (either paying in cash or through financing). Leased systems or those under a Power Purchase Agreement (PPA) do not qualify. Additionally, there’s no income limit to claim the credit, making it widely accessible to those with taxable income to offset.
To claim the federal solar tax credit, you’ll need to file IRS Form 5695 with your tax return. This form will calculate the credit amount and include it in your return, directly reducing your tax liability. If other clean energy incentives are received for the same project, you can still claim the federal tax credit, though it might adjust the credit amount.
Finally, the federal solar tax credit can be combined with state and local incentives, potentially increasing the overall savings on your solar investment. However, some rebates or incentives may need to be subtracted from the total cost before calculating the federal tax credit.
For detailed instructions on how to apply for the federal solar tax credit and an in-depth understanding of its benefits, the IRS website can provide guidance.