What’s the Solar Energy Tax Credit?

by TurboTax•1639• Updated 1 week ago

To claim the nonrefundable Solar Energy Federal Tax credit, you need to complete and attach IRS Form 5695 to your federal tax return.

Solar photovoltaic (PV) systems installed in 2020 and 2021 are eligible for a 26% tax credit.

In August 2022, Congress passed an extension of the investment tax credit (ITC,) raising it to 30% for installations between 2022-2032. (Systems installed on or before December 31, 2019, were also eligible for a 30% tax credit.)

It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. The tax credit expires starting in 2035 unless Congress renews it.

For info on where to enter qualified energy-saving improvements, go here.

Eligibility criteria

Your solar PV system was installed between January 1, 2017, and December 31, 2034.
The solar PV system is located at your primary or secondary residence in the United States, or for an off-site community solar project, if the electricity generated is credited against, and doesn’t exceed, your home’s electricity consumption.
You own the solar PV system (i.e., you purchased it with cash or through financing, but you are neither leasing nor are in an arrangement to purchase electricity generated by a system you don’t own).
The solar PV system is new or being used for the first time, because the credit can only be claimed on the “original installation” of the solar equipment.

You don’t necessarily have to be a homeowner to claim the tax credit, but you have to be the owner of the solar system itself, which means you can’t claim the credit if you’re a renter and your landlord installs a solar system.

You also cannot claim the credit if you bought, but didn’t install the solar system. It must be placed in service during the year, meaning they must be installed and producing electricity.

What expenses can you claim

Solar PV panels or PV cells used to power an attic fan (but not the fan itself)
Contractor labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection costs, and developer fees
Balance-of-system equipment, including wiring, inverters, and mounting equipment
Energy storage devices that are charged exclusively by the associated solar PV panels, even if the storage is placed in service in a subsequent tax year to when the solar energy system is installed (however, the energy storage devices are still subject to the installation date requirements)
Sales taxes on eligible expenses