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What’s the Solar Energy Tax Credit?

SOLVEDby TurboTax801Updated December 31, 2021

A Solar Energy Tax credit is a nonrefundable credit. To claim a 30% credit, the solar PV system must have been installed before December 31, 2019. The credit decreases to 26% for systems installed between January 1, 2020 and December 31, 2022, and to 22% for systems installed in 2023. Unless Congress renews it, the credit expires in 2023.

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

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

Eligibility criteria:

  • Your solar photovoltaic (PV) system was installed between January 1, 2006, and December 31, 2021
  • 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

State tax credits for installing solar PV generally don’t reduce federal tax credits (and vice versa).

The rebate will reduce your solar system expenses, therefore reduce the credit, however it won’t be taxable income for you. Payment for renewable energy certificates will be considered taxable income, but it won’t reduce the federal solar tax credit.

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