Switching to solar energy is an exciting opportunity for homeowners looking to reduce their energy bills and invest in clean, renewable power. One of the biggest financial benefits of installing solar panels is the Solar Investment Tax Credit (ITC)—a powerful incentive that can make solar more affordable.
But how does the ITC work, who qualifies, and how can you claim it? Let’s break it down.
What Is the Solar Investment Tax Credit?
The Solar Investment Tax Credit (ITC) is a federal incentive that allows homeowners to deduct a portion of their solar installation costs from their federal income taxes. This program was created to encourage the adoption of solar energy by making it more financially accessible.
Currently, homeowners who install solar can claim 30% of the total system cost as a tax credit. This credit is scheduled to decrease over time:
- 30% for systems installed through 2032
- 26% in 2033
- 22% in 2034
- If the government does not renew the ITC, the credit will expire completely in 2035.
This means that homeowners who act sooner rather than later can lock in the highest tax credit amount available.
Who Qualifies for the ITC?
To be eligible for the solar tax credit, you must meet the following criteria:
✅ The system must be installed at a U.S. residence that you own.
✅ The installation must occur between 2017 and 2034.
✅ The system must be new (not repurposed or used).
✅ You must own the system, either by purchasing it outright or financing it (leased systems do not qualify).
✅ You must claim the credit in the same tax year the system was installed solar system can purchase an interest in a community solar project.
What Costs Are Covered by the ITC?
The ITC applies not only to the solar panels themselves but also to many of the associated installation costs, including:
- Solar panels
- Battery storage systems
- Inverters and racking systems
- Labor and installation costs
- Permit fees and inspections
- Sales tax (where applicable)
These covered expenses help reduce the overall cost of going solar, making it a smart investment for homeowners.
How Do You Claim the Solar Tax Credit?
Claiming the ITC is a straightforward process:
1. Save All Receipts and Documentation
Keep detailed records of all solar-related expenses, including invoices from your installer, receipts for permits, and any documentation related to your system’s cost. Send these documents to your professional tax advisor (if applicable).
2. Fill Out IRS Form 5695
This form calculates your total solar tax credit based on your eligible expenses.
3. Transfer the Credit to Your 1040 Tax Return
Once the credit amount is determined, apply it to your IRS Form 1040 when filing your federal income taxes.
4. Carry Forward Any Unused Credit
If your tax liability is smaller than your available credit, the unused portion rolls over to the next year. This means you won’t lose out on savings if you can’t use the full credit in one year.
Does the ITC Work With Other Incentives?
Yes! The ITC can be combined with other solar incentives to maximize savings. Many states, including Maryland and the District of Columbia, offer additional programs such as:
- State tax credits
- Solar Renewable Energy Credits (SRECs)
- Rebates from local utilities
- Net metering programs that pay you for excess energy your system produces
Taking advantage of multiple incentives can significantly lower the cost of installing solar and reduce your payback period.
What If You Don’t Owe Enough Taxes?
The ITC works as a dollar-for-dollar reduction of the income taxes you owe. If your tax liability is smaller than the credit amount, you can roll over the remaining credit to future tax years until it is fully used.
For example:
- If your total tax credit is $6,000 but you owe only $4,000 in federal taxes this year, you can apply the remaining $2,000 to next year’s taxes.
This flexibility ensures that homeowners can still benefit from the ITC, even if they don’t owe a large tax bill in a single year.
Tax Credit vs. Tax Deduction: What’s the Difference?
It’s important to understand that the Solar Investment Tax Credit (ITC) is a tax credit, not a deduction.
- A tax deduction reduces the amount of income that is taxed. For example, if you have a $5,000 deduction and earn $60,000, your taxable income would drop to $55,000.
- A tax credit, on the other hand, is even more valuable because it directly reduces the amount of taxes owed. If you qualify for a $6,000 ITC credit and owe $6,500 in federal taxes, your tax bill is reduced to just $500!
Because the ITC is a dollar-for-dollar reduction of your tax liability, it provides greater savings than a standard deduction would. If your tax credit exceeds what you owe in one year, you can roll it over to future years.
Invest in Solar With Uprise
At Uprise Solar, we help homeowners navigate the process of going solar—from installation to maximizing their incentives. The Solar Investment Tax Credit is a valuable tool that makes solar more affordable, and now is the best time to take advantage of it before the incentives start decreasing.
Ready to see how solar can work for your home? Contact Uprise Solar today to schedule a consultation and start saving!