The Solar Investment Tax Credit (also called the ITC) was first offered via the Energy Policy Act of 2005. Because of its popularity and contribution to assisting homeowners in reaching renewable energy goals, the ITC has been extended multiple times. Originally set to expire in 2007, the current federal solar tax credit extension is currently set to expire in 2033. When you install a solar system, the federal government rewards you with a tax credit for investing in solar energy. 30% of your total project costs (including equipment, permitting and installation) can be claimed as a credit on your federal tax return.
How You Can Use the ITC for Solar
Homeowners can use the federal tax credit for installing new systems, adding on to their existing systems, off-grid solar projects, battery storage, and more.
A tax credit is a dollar-for-dollar reduction of the income tax you owe. In other words, $1 credit = $1 less you pay in taxes. It’s that simple. If you spend $10,000 on your system, you owe $3,000 less in taxes the following year. It’s important to note that a credit is different than a refund because you must owe taxes to claim the incentive. But since most people owe taxes, most people end up being eligible for the Federal Solar Tax Credit.
We need to mention that you are only allowed to claim the credit if you actually own your system. You’ll still get the benefits of cheap, renewable energy if you lease your system. But remember; one of the benefits of installing solar in 2023 is not missing out on the tax credit and getting an even more positive ROI from your system.
A necessary disclaimer: we are solar experts, but we’re not accountants or tax attorneys! We always strive to give accurate advice, but please check with a professional to be sure you’re eligible to claim the credit.
Getting Started: Solar Tax Credit Tips
Here’s some notable advice to assist you in starting your solar project. First, keep all your receipts from the very beginning of your solar installation project. Like any tax incentive, the Federal Solar Tax Credit requires good record-keeping. The more you spend on your project, the larger your credit – so make sure to keep track of the entire paper trail of the project.
Here are some of the expenses that you can claim:
- Solar consulting fees
- Permitting fees
- Permitting service costs
- Engineering fees
- Solar equipment
- Tools bought or rented
- Wiring, hardware (screws, bolts, nails, etc.)
- Equipment rented or purchased (scaffolding or a man-lift, etc.)
- Freight/shipping costs
- Professional installation fees
- Electrician fees
Controlling Costs
Costs will vary depending on the method of installation chosen. The good news is that hiring a professional solar installer is an expense that can be claimed.
You can also choose to install the system yourself. Although you can’t claim your own labor as an expense for the credit, there are many ways for you to save and still come out far ahead on overall costs.
Once you’ve paid for your overall system installation, you’ll need to prove it to the government to claim your solar tax credit. For that, you need IRS Form 5695 to claim the residential energy credit.
- Confirm your eligibility for the tax credit. (If you own the system and owe taxes, you’re probably eligible. Check with a tax specialist if you’re not sure.)
- Gather all your expense receipts and put them in a safe place.
- Complete The IRS Form 5695 to add up your renewable energy credits
- Add your renewable energy credit information to your typical form 1040
It’s Really That Simple
We hope this serves as a good overview of the Federal Solar Tax Credit and helps you navigate the solar installation process. For residents of our home State of WI, we recommend you check out the DSIRE USA Program Information page.
Our experienced solar consultants are ready to help you plan and design your Next Energy Solution solar system today. Get in touch with us for your free consultation! We’re happy to walk you through any questions you may have. We’ll help you find a simple and affordable solution to your residential or commercial solar project, taking into account the ITC and many other solar rebates or renewable energy programs available to you.