Table of Contents
September 28th, 2022
TOPIC: Solar Investment Tax Credit
This guide will educate you on Solar investment tax credits.
If you own a home and want to find out how you can get paid by the IRS for installing eco-friendly devices in your home, this blog is for you!
If you like guides like this, feel free to follow us on social media and subscribe to our email list to get updates on when a new blog drops!
What is Solar Investment Tax Credit?
Solar Investment Tax Credit is a credit provided to individuals and businesses for installing solar-powered devices on their property.
As you know, our government is trying to push for clean energy. To that end, they offer many incentives to encourage Americans to switch to clean energy.
One such incentive is the solar investment tax credit.
When a person buys solar-powered devices to have them installed on their property, the government refunds them a portion of the cost associated with the purchase.
This refund is applied to the individual or business’s taxable income to reduce their tax liability.
How Much Money Can I Receive From This Credit?
When you install solar equipment, you can qualify for a credit of up to 30% of your total cost.
However, the percentage you can claim depends on when the equipment was installed.
This credit was to expire in 2024. However, the Inflation Reduction Act extended the tax provision.
Originally, if you decided to get solar equipment installed this year (2022), you would receive a refund of 26%.
However, when President Biden signed the Inflation Reduction Act into law, he increased the amount and extended the credit timeline.
Thanks to this new law:
- Those who install solar equipment this year and before 2032 ends will qualify for a 30% tax credit.
- Solar equipment installed in 2033 will receive a 26% tax credit.
- Solar equipment installed in 2034 will receive a 22% tax credit.
As you can see, the refund percentage decreases as time progresses.
If you have already installed a solar system but have not claimed your tax credit, you are now eligible for the 30% tax credit.
What Cost Is Included With This Tax Credit?
You will be refunded 30% for any cost associated with installing solar panels.
This includes the equipment, materials, permitting fees, inspection costs, labor, and developer fees.
This tax credit will now reduce the cost of installing solar rooftops for a home by 30% or more than $7500 for an average system.
How Do I Qualify For The Credit?
Here are the requirements for you to claim this tax credit:
- This tax credit is only available to people who own the solar system. Leasing the system will not work.
- You must own your own home to qualify. So living in an apartment will not qualify you for this credit.
- The solar system installed must also be new. The credit does not apply to any existing solar panels.
- You must have taxable income.
- Businesses must be subject to federal income taxes to be eligible. Charities will not be eligible.
- Businesses must not use solar equipment to generate heating for swimming pools.
Is The Solar Investment Tax Credit Refundable?
Unlike other tax credits, the Solar Investment Tax Credit is not refundable. Therefore, you will not receive any cash back if the credit exceeds your taxes owed.
This means you will not be able to use the credit as money towards groceries or anything else besides lowering your tax bill.
How Do I Claim The Tax Credit?
To claim the credit, you must file IRS Form 5695 as part of your tax return.
They will ask you to calculate the credit on the first section of the form and then enter your results on your 1040.
The Solar Investment Tax Credit is a credit the government offers individuals and businesses to purchase solar equipment.
Thanks to the Inflation Reduction Act, this tax credit has been extended.
As a result, many Americans can now qualify for a 30% tax credit for solar equipment installation.