Frequently Asked Questions About the Solar Tax Credit
Since it was introduced in 2005, the solar tax credit has been crucial to incentivizing the adoption of rooftop solar and creating tailwinds for the residential solar industry.
Today, with the cost of solar panels falling and the cost of grid electricity rising, the solar tax credit is more like the cherry on top of already substantial solar savings. It’s also the source of many questions, as most people don’t deal with solar panels and tax credits on a daily basis.
In this article, we’ll tackle some frequently asked questions about the solar tax credit so you can start your home solar project armed with knowledge and confidence.
Jump to your question:
- What is the 2023 federal solar tax credit?
- How do I claim my solar tax credit from the IRS?
- Does the solar tax credit apply to battery storage?
- Is the solar tax credit refundable?
- Will I get the solar tax credit if I don’t owe taxes?
- How many years can you carry forward the solar credit?
- What is the federal tax credit for solar in 2024?
- How many times can I claim the solar tax credit?
- Can the solar tax credit be combined with other incentives?
- Does the solar tax credit apply to roofs?
- Is the solar tax credit worth it?
The solar tax credit is a dollar-for-dollar reduction in your tax liability worth up to 30% of the cost of a solar and/or battery project. This incentive is also known as the investment tax credit (ITC) and Residential Clean Energy Credit.
So, if you spend $25,000 on a solar system, the credit can be used to lower your tax liability by up to $7,500. By reducing your federal tax liability, the credit can increase your refund or reduce the amount you owe when you file your federal tax return.
The solar tax credit is claimed on tax form 5695 when you file your federal income tax return.
This credit must be claimed in the same tax year that your system was deemed operational by passing city inspection. If your tax liability is lower than the value of the credit, the surplus amount can be carried forward into future tax years.
Related reading: How to File the Federal Solar Tax Credit: A Step by Step Guide
Yes. In addition to solar electric expenditures, the Residential Clean Energy Credit also applies to battery storage. For that matter, it also applies to solar water heating, small wind, geothermal heat pump, and biomass fuel projects.
Thanks to the Inflation Reduction Act, the Residential Clean Energy credit applies to standalone battery storage (that is, storage that’s not connected to a solar system) greater than 3 kWh in size installed after January 1, 2023.
Related reading: Do Batteries Qualify for the Solar Tax Credit?
No, the solar tax credit is a non-refundable tax credit, which means it can only be used to offset your tax liability.
This only comes into play if the value of the tax credit is greater than your tax liability. With a refundable credit, the excess credit is refunded. With a non-refundable credit, the excess credit can be carried forward or “rolled over” into future tax years.
|What happens to surplus credit?
|Carried forward to future tax returns
Being able to roll over excess credit allows solar owners to enjoy the full credit amount, even if they have limited tax liability.
As a non-refundable credit, the solar tax credit can only be used to reduce your tax liability. Therefore, if you don’t have any tax liability, you may not be able to claim this credit.
If you don’t have any income to create tax liability and you want to claim this credit, it’s worth consulting a licensed tax professional before you sign a solar contract to discuss strategies for creating tax liability.
However, it’s worth noting that solar may still provide energy cost savings, especially in the long-term, even if you can’t claim the solar tax credit. The tax credit is often the cherry on top of a the solar savings sundae — not the sundae itself.
The solar tax credit can be rolled over for as long as the credit is in effect, which is currently scheduled through 2034.
In August 2022, the signing of the Inflation Reduction Act increased the credit value to 30% for 2022-2032. The tax credit steps down to 26% in 2023 and 22% in 2034 before going away for homeowners altogether.
While that seems like a long runway, this timeframe is subject to change if the Inflation Reduction Act is repealed or revised.
The solar tax credit will be worth 30% in 2024, based on the schedule put in place in August 2022 by the Inflation Reduction.
However, it’s worth noting that repealing or replacing the Inflation Reduction Act could affect how much the solar tax credit is worth and when it expires.
Homeowners can claim the solar tax credit once per solar and/or battery system installed on an eligible property, and the credit must be claimed in the tax year the system was deemed operational.
There are a few scenarios where the same person could claim the solar tax credit more than once.
For example, if a homeowner installs a solar system, claims the tax credit, and then decides to move, they would be able to claim the credit again if they install an entirely new solar system on their new home.
It’s also possible for homeowners to claim the solar tax credit for systems installed on both a primary residence and a second home, provided they are qualifying residences.
- You can claim the solar tax credit on your primary residence, “whether you own or rent it”
- You may also claim the solar tax credit for a solar installation on a second home, provided it’s located in the US, you live in it part time, and you don’t rent it to others
- Landlords and property owners can’t claim the tax credit for installations on homes that they do not live in
As a rule of thumb, in order to claim the tax credit, you must live, at least part-time, in a home being improved by solar and battery systems.
It’s okay to rent out part of a primary residence, provided you still live in it. However, you cannot rent out a second home and claim the Residential Clean Energy Credit for solar and battery installations.
Yes, the solar tax credit can be combined with state, local, and utility incentives to further reduce the cost of solar and battery systems.
But remember, the solar tax credit is worth 30% of solar/battery expenditures (i.e., what you paid for the system). So, if you claim a rebate that reduces the cost of the system – even retroactively – it reduces the value that the credit is based on.
For example, say you buy a 5 kW solar system in upstate New York for $25,000. The NYSERDA rebate would reduce the upfront cost of that system by $1,500 and reduce the solar expenditure to $23,500. Instead of being worth $7,500, the tax credit would now be worth $7,050, as shown below.
|Solar tax credit value
As you see in the table above, combining the incentives is still worthwhile even if claiming the rebate reduces the value of the tax credit.
The solar tax credit only applies to roofing materials that also serve as solar electric collectors, according to guidance provided by the IRS in December 2022.
In order for roofing material to qualify for the Residential Clean Energy Credit, it must also serve as solar electric generation. That means solar shingles and the Tesla Solar Roof would qualify for the solar tax credit.
There has been confusion around this topic, but the IRS has been very clear with its guidance that traditional roofing materials do not qualify for the solar tax credit, even if they’re installed as part of a PV solar project.
The solar tax credit is absolutely worth the time it takes to research and claim it. It’s worth up to 30% of your solar and/or battery expenditures and limited only by your tax liability.
So, if you spend $70,000 on a massive solar and battery system, you can reduce your tax liability by $21,000 — even if it takes several tax years to do so.
This credit is especially worthwhile give the falling costs of solar equipment and the fast-rising cost of grid electricity. In many cases, solar panels make economic sense without any incentives, and getting 30% of your cost back come tax season is just a cherry on top.
The bottom line
The beauty of the solar tax credit is that it’s available nationwide to homeowners to reduce the cost barrier of installing solar and battery systems.
With that said, it also takes some legwork to understand and claim this credit. Consulting a licensed tax professional early in the solar process can clear up any confusion and provide a clear path to achieve your energy and savings goals.