How to Claim Solar Tax Credit 2023?

Solar tax credit 2023 is a golden opportunity, like the tax credit for buying an electric vehicle I posted earlier. This tax-saving opportunity arose as Congress extended the original Energy Policy Act of 2005. Consequentially, individuals and businesses can invest in the solar energy system and claim 30 percent of the investment as an investment tax credit (ITC). The new law enacted in August 2022 as part of the Inflation Reduction Act extended the benefit of solar investment tax credit to another 10 additional years. So, the solar investment tax credit is now available to homeowners and others at 30% till tax year 2032 and 26% in 2033, and 22% in 2034.

What type of expenditure is covered by the solar tax credit 2023? 

The following expenditures are covered for the claim of solar tax credit : 

• solar panels purchase cost
• Installation cost that includes labor costs for installation, including permitting fees, inspection costs, and developer fees 
• Any and all additional solar equipment, like inverters, wiring, and mounting hardware 
• Energy storage systems rated three kilowatt-hours (kWh) or greater (starting in 2023). 
• Any taxes paid on eligible solar equipment expenses 

Who is eligible for the solar tax credit 2023?

Both individuals and businesses can claim solar investment tax credits from 2022 to 2033 at 30% of investments. Here are the conditions that must be fulfilled to qualify for the solar tax credit.

1. You must install the solar energy system.
2. You must own a solar energy system. Since the main criterion is ownership, you do not get ITC if you sign a lease agreement for the solar electric system.
3. Your solar PV system must be new or used for the first time – the credit can only be claimed on the original installation of the solar equipment. 
4. You are eligible even if the solar energy system is not in your primary residence. You can claim the solar tax credit if you own the property and live in it for part of the year.

See this solar tax credit calculator as well

Can I carry forward the solar tax credit 2023?

The answer is Yes. Suppose your federal tax liability is lower than the total amount of your ITC savings. In that case, you can carry forward any remaining credits to the following year till you exhaust the full solar tax credits.

How to claim the solar tax credit 2023?

It is always better to take the help of tax professionals to fill out the appropriate form for a claim of various tax credits and deductions.

1. Determine if you are eligible for the Federal ITC. Read the eligibility questions above.
2. Complete IRS Form 5965 to validate your qualification for renewable energy credits
3. Then, on Part- I of the tax form, calculate the credit. You file your solar system as “qualified solar electric property costs.”
4. Then, on line 1, enter your project’s total costs as written in your solar contract. 
5. Complete the calculations on lines 6a and 6b. 
6. On line 14, calculate any tax liability limitations .IRS provides a Residential Energy Efficient Property Credit Limit Worksheet for your help.
7. Finally, complete the calculations on lines 15 and 16.

When is the solar tax credit expiration?

The solar tax credit will continue offering 30 percent savings until 2033 and 26% in 2034. Secondly, the ITC you are eligible for and claimed on your tax return will roll over to next year till finally exhausted.

How does solar tax credit by state affect federal ITC?

Solar tax credits by states may affect your federal taxable income but not the claim of your federal solar tax credits. This is so because getting any state tax credit for your solar power system will not decrease your federal tax credits. So, in a way, your effect of credit will decrease a little bit due to the addition to federal income. However, the rebates for solar energy investments that you get from the state will be in addition to federal solar tax credits without any impact.

Is solar tax credit for nonprofit organizations allowed?

Earlier, nonprofit organizations could not claim solar energy investment credits because they didn’t have the tax liability required to qualify. However, with the passage of 2022’s Inflation Reduction Act, they can also claim 30% tax credits on their return; therefore, starting January 1, 2023, non-profit organizations are also eligible for the federal solar tax credit, even if they do not have taxable profits