Solar Investment Tax Credit
The Solar Investment Tax Credit is a dollar-for-dollar reduction in federal income tax for anyone who purchases solar panels for their home or business. The amount credited is equal to 30% of the purchase price of your solar system. It’s not a rebate (which helps you pay for your system directly). It’s not a tax deduction (which reduces your total income and thereby decreases your tax bill by a small amount). It’s dollars that you don’t have to pay the IRS, or that the IRS will refund to you in April if you’ve overpaid.
Since it was implemented in 2006, the Investment Tax Credit has helped spur the renewable energy industry boom, driving competition and innovation and reducing costs and carbon emissions. Overall, it's a win-win for consumers and for the environment.
Limitations Of The Federal Solar Tax Credit Program
Any U.S. taxpayer who purchases a solar system outright is eligible for the Investment Tax Credit (pdf). It doesn't matter how you buy your system — cash, loan, or line of credit.
If you installed your system with a solar lease or Power Purchase Agreement, then you are not eligible, since the leasing company actually owns the system. Remember, this is a tax credit, not a rebate, so you must have a tax liability to benefit. If you don’t pay income tax, then you won’t be able to use the credit.
What Is The Deadline For Claiming The Investment Tax Credit?
The Investment Tax Credit was set to expire at the end of 2016, but as of December 2015, it’s been extended. It will retain the 30% rate until 2019. In 2020, it will fall to 26% and then down to 22% in 2021, after which it will remain at 10% for commercial solar and drop down to 0% for residential projects.
If you’ve been thinking about going solar for a while, now is the best time to switch. Make the switch to this renewable energy before this generous tax credit goes away for good!
IRS Form 5695
This is the form used to apply for federal tax credits, like the Solar Investment Tax Credit, for residential energy saving measures. You can take the credits if you made energy saving improvements to your home, such as installing a solar electric system, solar water heating system, geothermal pump, etc...
You can get the form through the IRS’s website or through your local tax office. The form must be submitted with the personal income tax 1040 return of the homeowner claiming the tax credits.
Please contact your own accountant if you have any specific questions regarding maximizing the full advantages of your Solar Investment Tax Credit.