Guide to Going Solar » Federal Solar Tax Credit

Federal Solar Tax Credit

The federal solar tax credit is worth 30% of the cost of your system.

Homeowners who purchase a solar system for their home can take advantage of a federal tax credit (the “Residential Clean Energy Credit”) that can cover 30% of the cost of their system. 

Certasun Solar Installers and Electricians

WHAT IS COVERED UNDER THE FEDERAL SOLAR TAX CREDIT?

The federal solar tax credit applies to the total cost of the solar energy system, including any remediation needed for the purpose of installing solar.

Battery energy storage systems are also eligible for this 30% credit.

There is no limit to the amount that can be claimed, nor is there an income qualification.

A TAX CREDIT IS NOT A TAX DEDUCTION

A tax credit is a direct reduction in the amount of tax you owe. If you have a $10,000 credit you would pay $10,000 less in taxes than you would otherwise owe. Many taxpayers are more familiar with tax deductions, which reduce the amount of income that is taxed. A tax credit is much more valuable.

See the following example comparing a $20,000 tax credit and tax deduction of the same size. A $20,000 tax credit will save a customer $14,400 more than if it had been a tax deduction.

Income
Tax deduction
Taxable income
Tax liability (@ 28%)
Tax credit
Total taxes paid
$20,000 CREDIT
$100,000
n/a
$100,000
$28,000
-$20,000
$8,000
$20,000 DEDUCTION
$100,000
-$20,000
$80,000
$22,400
n/a
$22,400
Picture of Form 5695 Federal Solar Tax Credit

How to Claim the Solar Tax Credit

Homeowners can claim the federal tax credits for residential solar and battery storage when they file their taxes on IRS Form 5695: Residential Energy Credits.

You should claim the credit in the tax year in which your system was installed (not the year in which you signed the purchase agreement or paid for it).

How to Claim the Solar Tax Credit

Picture of Form 5695 Federal Solar Tax Credit

Homeowners can claim the federal tax credits for residential solar and battery storage when they file their taxes on IRS Form 5695: Residential Energy Credits.

You should claim the credit in the tax year in which your system was installed (not the year in which you signed the purchase agreement or paid for it).

What if you don’t owe enough in tax?

You should be reasonably sure you will owe enough in federal tax to use the tax credit if you plan to purchase your system. The IRS will not send you money if the value of your credit exceeds your tax liability.

Leasing your system is a great option if this describes you. The lessor of the system will be entitled to the credit and be able to pass along the savings to you in the form of lower monthly payments – definitely lower than your current cost of energy. 

On the other hand, you can roll over all or part of the tax credit to future tax years if you can’t use it all right away, so it’s probably not worth significantly delaying your installation if you aren’t absolutely, positively sure you’ll be able to use all the credit in the first year and you don’t want to lease. 

What about Estimated Taxes?

If you are required to file quarterly estimated taxes (you know who you are), you can take advantage of the federal incentives almost immediately after installing your system. Estimated taxes are based on the amount of tax liability you expect to have for a given year. So, if you expect to have $10,000 less in tax liability for a year because of the solar tax credit, you can probably reduce your quarterly payments by $2500 each.

Solar Tax Credit Fraud

Every so often we hear from our salespeople that this-or-that solar company is telling someone they can claim the solar tax credit on the cost of a new roof, or on electrical work not related to solar. We are quite certain this is not allowed. If someone is promoting tax credits that seem too good to be true, you should ask yourself whether there are any other “facts” they might not be accurately reporting to you.

Certasun is not your tax preparer, accountant, or lawyer. We are not giving you individualized tax advice. You should consult your own advisors about your particular situation.

Get a Quote

Receive a custom quote for your home. Schedule an online consultation at a time that is convenient for you.

"*" indicates required fields

Name*
Not quite ready? Call (312) 638-0800 with any questions!