The enhancement of solar tax credit via the recently enacted- Inflation Reduction Act of 2022 was signed into law by President Joe Biden on August 16th, 2022. has given a new lifeline to the solar industry with various tax incentives for home solar and electric vehicle purchases. So, under the new law. you can get tax credits for investment in various solar energy products and claim a total of 30% of your solar investment. this solar investment credit rate will be applicable till the year 2032.
What is the federal solar tax credit?
The federal solar energy credit is a tax credit that a percentage of investment in a solar photovoltaic (PV) system during the tax year and generates electricity for a home located in the United States. You should note that the federal tax credit for solar system investment not only reduces your tax liability but also can be used to reduce the alternate minimum tax, in case you fall under AMT.
Which provision of law under IRC , the solar tax credit allowed?
Section 25D of the Internal revenue Code , the solar tax credit is covered, Inflation Reduction Act of 2022 extended the “residential clean energy credit” through 2034 and increased the tax credit to 30% credit for expenditures towards qualified solar electric expenditures including solar water heating expenditures, geothermal heat pump expenditures, small wind energy property expenditures.
Year-wise solar tax credit rates applicable 2022 onwards?
The federal solar tax credit, also known as the solar Investment Tax Credit (ITC), allows you to receive a deduction on your federal taxes equal to 30% of the cost of a home solar installation as a tax credit until 2032. After that, the solar tax credit steps down to 26% in 2033 and then 22% in 2034, expiring thereafter.
Is solar tax credit refundable?
Not really! The federal solar tax credit is non-refundable and can only be used to offset your current tax liability. Any extra ( over and above your tax liability ) carries over to future years, as long as the credit still applies in future years. In other words, the portion of the credit that is not allowed because of this limitation may be carried to the next tax year and added to the credit allowable for that yea.
Solar tax credit calculator
It is easy to understand the aforesaid solar tax credit calculator. Let us say, in 2022, your solar installation costs $30,000. At a rate of 30% of the tax credit, your qualified federal tax credit would be $9,000. If the federal income tax liability for 2022 is only $3,000. Then, the solar tax credit would reduce your tax liability to zero, and the balance of $6,000 ($9,000–$3,000) is carried over to 2023 for tax adjustment ., .
What are qualified homes for the solar tax credit?
In order to qualify for the solar credit, you must invest in energy-saving improvements to your home situated in U.S. . The home can of any types as stated below :
- Mobile home
- Cooperative apartment
- Manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards
What type of solar installation qualifies for the federal tax credit?
However, one should note that the tax credit doesn’t apply to solar systems that you lease or for systems that you use to heat a swimming pool or hot tub..The qualified energy-saving equipment includes:
- Solar-powered units that generate electricity or heat water
- Solar power storage equipment for 2022, but a capacity of at least 3-kilowatt hours is required beginning in 2023
- Some installation and labor costs
Not all kinds of solar installation qualify for the federal tax credit. There are basically two types of solar installation that qualify for this credit. These are :
- Any solar electric property that uses solar energy to generate electricity for use in your main or second residence.
- Any solar water heating property installation in a house located in the U.S. is used as a main or second residence where at least half of the energy used to heat water is derived from the sun. Please note that heating water for swimming pools or hot tubs does not qualify for the credit.
The solar equipment must be certified for performance by the Solar Rating Certification Corporation or a comparable entity endorsed by the state government where the property is installed.
Can I get a solar tax credit if I do not own a home?
The answer is Yes! Internal Revenue Code does not provide that the house on which solar property is installed must be owned by you. The only requirement is that you must be a “resident” of that home. Even if you live in your parent’s home, if you pay for the solar system on that house, you can claim the solar tax credit.
How to claim the solar tax credit?
Complete the solar tax credit form IRS Form 5695-to know if you qualify for renewable energy credits. If you are eligible, add your solar tax credit information to your tax Form 1040 for the year in which the installation was completed.