If you’ve been considering installing solar panels or have recently installed them and have been bearing the burden of the cost, the federal solar tax credit may be the thing for you! The solar tax credit, formally known as the Residential Clean Energy Tax Credit, is a notable solar incentive that existed prior to the passage of the Inflation Reduction Act. However, when this legislation was passed, it extended the 30% tax credit through the end of 2032.
When it comes to the Inflation Reduction Act and solar panels, this incentive is key to solar accessibility. Thanks to the Inflation Reduction Act, clean energy goals are more attainable, and solar adoption is made easier through significant financial incentives.
Let’s take a look at how the solar tax credit works and how you can qualify for it.
What Is the Solar Tax Credit?
The 2024 solar tax credit is an investment tax credit (ITC) that supports solar adoption and the development of solar energy systems by offering financial incentives for solar. In other words, it aims to increase investment in solar development and is using financial incentives to do so. The credit, which is colloquially known as the solar tax credit, solar panel tax credit, or federal tax credit for solar, can help cover the cost of purchasing and installing solar panels.
How Does the Solar Tax Credit Work?
If you paid for the installation of a qualifying solar system, you could claim the 30% credit. The solar tax credit works by reducing what you pay in income taxes by a portion of your solar installation costs. Intrigued, but not sure if you’re eligible? Keep reading! We’ll break down eligibility and how much you can save in the next two sections.
Do I Qualify for the Federal Solar Tax Credit?
There are a handful of guidelines to qualify for the solar incentive. The list below provides criteria that must be met in order to qualify. Please note that this does not always guarantee that your system will qualify.
- System ownership: to qualify for the solar tax credit, you must own the solar system. A system that you are leasing will not qualify for the tax credit. Furthermore, existing systems on property you recently purchased will not qualify.
- Installation location: The system must be installed at your residence, either primary or secondary, where you have lived during the year for which you are claiming the credit.
- Project activation: While the credit is claimed retroactively, the system must have been activated after 2017.
How Much Can I Claim with the Federal Solar Tax Credit?
There’s no limit on the amount you can claim with this tax credit; however, there are some limitations to what kinds of costs it can cover. The following costs qualify for the credit.
- Solar Panels: the tax credit can cover some of the cost of purchasing solar panels.
- Installation: there are often significant installation costs when it comes to home solar energy systems, from permitting to inspection; these costs are covered by the tax credit.
- Battery Energy Storage Systems: the cost of energy storage systems will be covered starting in 2023, provided these storage systems are 3 kilowatt-hours or larger.
How Much Can I Save with the Federal Solar Tax Credit?
The tax credit under the Inflation Reduction Act is currently 30% of eligible costs and will continue at this percentage through 2032. The chart below breaks down the Federal Solar Tax Credit percentages between 2022 and 2035.
How Do I Claim the Solar Tax Credit from the IRS?
If your project aligns with the criteria outlined above, you will need to file an IRS form 5695 to claim the solar tax credit when you complete your tax returns. Before you get ready to claim your tax credit, let's recap.
Solar Tax Credit 2024 Recap
- If you're filing your taxes in 2024, the solar panel tax credit is 30% of eligible costs associated with solar installation.
- The solar tax credit extends to new solar installations on your property after 2017.
- The federal tax credit for solar can reduce what you pay in income taxes
- An IRS form 5695 must be filed to claim the solar tax credit.
Thanks to the Inflation Reduction Act’s extension of the solar tax credit, it is now easier than ever to realize the return on upfront solar investment. With the Inflation Reduction Act, solar panels become more accessible, and clean energy investments are incentivized.
If you've made investments in home solar and supported the future of our planet, thank you. Take advantage of these incentives, and your wallet will thank you too. Our mission to support a clean energy future includes everyone, and this incentive is making that just a little easier for all.
If you’re interested in renewable energy but rent your home or have a rooftop that is not suitable for panels, there’s another option available to you—community solar. With no upfront costs and no installation required, community solar is a great way to support clean energy and realize annual electricity savings. Learn more here.