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The federal solar investment tax credit provides a tax credit valued at 30 percent of the complete solar system's cost. Here's what you should know.

What is it?

The Residential Clean Energy Credit, commonly known as the federal solar investment tax credit (solar ITC), extends its benefits until 2034, providing a tax credit valued at 30 percent of the complete solar system’s cost.

Introduced in 2005 to incentivize property owners to adopt solar panels, the federal solar tax credit was initially set for expiration in 2006. However, it saw multiple extensions by Congress. In 2020, the credit reduced from 30 percent to 26 percent, persisting through 2021. The Inflation Reduction Act of 2022 further extended the credit until 2034 and reinstated it to 30 percent for a decade, with slight reductions in the last two years.

Upon completion of the solar installation, applicants can seek the federal solar tax credit via the IRS. This credit amounts to 30 percent of the solar system’s cost, claimed upon filing the annual tax return.

The value obtained from the federal solar tax credit hinges on the total solar system cost. In 2022, an 8.6 kilowatt (kW) residential solar system averaged $31,558 nationwide, based on data from the Lawrence Berkeley National Laboratory.

The 30 percent credit for a system of this cost amounts to roughly $9,467. There exists no upper limit on this credit, ensuring the full 30 percent can be claimed, irrespective of the system’s size or overall cost.

What’s covered?

  • Solar panel modules or photovoltaic cells
  • Labor expenses encompassing onsite preparation, installation, permitting fees, inspections, and developer fees
  • Wiring, inverters, and mounting equipment
  • Energy storage devices like solar batteries, rated at 3 kilowatt-hours (kWh) or greater (applicable to systems installed post December 31, 2022)
  • Sales tax on qualifying expenses

Eligibility for the federal solar tax credit extends to single-family homes, apartments, condominiums, mobile homes, and multi-family dwellings. Additionally, rental properties qualify, provided the owner resides there for a part of the year. The percentage claimable depends on the duration of the owner’s stay in the rental property. For instance, residing half the year and renting it out the other half allows a 50 percent claim.

Notably, leasing a system or engaging in a power purchase agreement (PPA) renders individuals ineligible for the federal tax credit. Ownership of the system is a prerequisite for qualification.

Am I eligible to get the full credit?

To be eligible for the federal solar tax credit, individuals must:

  • Install or plan to install a functional solar panel system between January 1, 2006, and December 31, 2034.
  • Set up solar panels in their primary or secondary residence, residing there for at least a portion of the year.
  • You must own the system.  Projects that are completed with the use of a Lease or PP are not eligible.  Leasing or engaging in a PPA means the solar company retains ownership of the system.
  • Invest in a community solar project, wherein the energy generated offsets but doesn’t exceed the home’s electricity usage.
  • Ensure the solar panel system is new or installed for the first time. Purchasing a property with an existing solar system disqualifies individuals from eligibility.

How do I claim it?

To receive the 30 percent tax credit, fill out and return IRS form 5695 (PDF) after your solar panels are installed. The IRS provides instructions to help you fill out the form correctly. Once you’ve been approved by the IRS, you will receive your 30 percent savings in the form of a tax credit when you file your annual tax return. If the value of the credit is more than you owe in taxes, you can carry the remaining amount over to the following year until you’ve received the full amount.

Once you are engaged in a home energy project with Emporia, our Electrification Experts will help you navigate the details of Federal, State and Local incentives.  In some cases, Utility companies also offer incentives or rebates.  Emporia is here to help make sure that you have all the right information to make the best decision for your home energy project.

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