In December 2020, Congress extended the solar tax credit, providing a 26% tax credit for solar systems installed in residential homes from 2020 to 2022.
The solar tax credit decreases every year. For example, people who installed a solar system before 2019 were eligible for a 30% tax credit. In 2023, it drops to 22% and is currently set to expire in 2024, unless renewed by Congress.
What does this mean for you? If it costs you $15,000 to go solar, you will owe $3,900 less in federal taxes. If you wait until 2023, you will owe $3,300 less.
How does the 26% Solar Tax Credit work?
When you install a solar energy system in 2020, the government rewards you with a credit of 26% of the cost of the system. A tax credit is simply a reduction in the amount of tax you owe at the end of the year.
How much money will I actually save by using the Federal Solar Tax Credit in 2020?
How much you save depends on the overall cost of your system. To do the math, take your total (estimated) costs and multiply it by 0.26.
For example, if it's going to cost you $15,000 for all the solar equipment, $15,000 x 0.26 = $3,900. So, you would deduct $3,900 from what you owe in federal taxes for 2021.
How do I claim the investment tax credit?
You claim the investment tax credit when you file your taxes at the end of the year. Let your accountant know you've gone solar, or if you do your own taxes, you'll need to fill out the IRS Form 5695.
What costs/expenses can you actually claim?
- Solar equipment
- Freight shipping costs
- Solar consulting fees
- Professional installer fees
- Electrician fees
- Engineer fees
- Tools bought or rented
- Wiring, screws, bolts, nails, etc.
- Equipment purchased or rented (scaffolding or a man-lift, for example)
- Permitting fees
- Permitting service costs
- To qualify, you need to own your solar energy system, not lease it.
- If you owe less in taxes than the total amount of your credit, you can carry over the remaining to the following year.
- The tax credit will end soon unless renewed by Congress.
As always, consult your local accountant or lawyer for more advice, but this post covers everything you need to know!