The federal residential solar energy credit is a tax break that can be used to offset a portion of the taxpayer's investment in a solar PV system on federal income taxes. (Although they are outside the purview of this advice, other forms of renewable energy are also eligible for comparable credits.) The system must be fully installed by the end of the tax year.
Those that install solar PV systems in 2020 or 2021 are eligible for a 26% tax credit. Congress passed an extension of the IC in August 2022, bringing it to 30% for installations between 2022 and 2032. A 30% tax credit was also available for systems that were installed on or before December 31, 2019. For systems installed in 2033 and 2034, it will drop to 26% and 22%, respectively. If Congress doesn't extend the tax credit, it will end in 2035. The sum that can be claimed has no upper limit.
Do I qualify for the federal tax credit for solar energy?
If you fit the following description, you might be qualified for this tax credit:
- Installed between January 1, 2017, and December 31, 2034.
- The solar PV system is situated at one of your American homes.
- You either own the solar power system (i.e., you purchased it with cash or through financing, but you are neither
leasing the system nor paying a solar company to purchase the electricity generated by the system).
- Or, if the electricity produced is applied to, and does not exceed, your home's electricity consumption, you bought a stake in an off-site community solar project. Notes: According to a statement from the IRS (see link above), a specific taxpayer may claim a tax credit for investing in an off-site community solar project. However, other taxpayers may not rely on this document, often known as a private letter ruling (PLR), as precedent. Additionally, if all of your electricity comes from community solar projects, you would not be eligible.
-New or in use for the first time, the solar PV system. Only the "initial installation" of the solar equipment is eligible for the credit.
What costs are covered?
The following outlays are comprised:
PV cells or solar PV panels (including those used to power an attic fan, but not the fan itself)
Costs of contractor labor for site preparation, assembly, or first installation, as well as developer fees, inspection fees, and permit costs equipment for the balance of the system, including as wiring, inverters, and mounting devices.
Energy storage systems with a 3 kilowatt-hour (kWh) or higher capacity rating (for systems installed after December 31, 2022). The energy storage devices are nevertheless subject to the installation date requirements even if they are installed in a tax year that is later than the one in which the solar energy system was installed. Note: Other taxpayers may not rely on a private letter judgement as precedent.