How Does The Federal Solar Tax Credit Work?

A "Taxes" sign on top of money.

The short answer:

The Federal Solar ITC (Investment Tax Credit) provides a 26% tax credit for solar systems installed in 2020-2022.

The long answer:

Here are 5 important things to know about the Federal Solar ITC.

1: It's a tax credit, not a check.

  • Let's say your rooftop solar cost is $40,000. Then let's do the math: 26% of $40,000 = $10,400.
  • This means you can reduce your federal income taxes that are due by $10,400.
  • You will sadly not receive a big 'ol check from the government you can cash.
  • If you aren't quite sure what this means, see #4 on the list!

2: You don't get the tax credit with a solar lease.

  • You have to own your solar panels to qualify for the federal ITC.
  • When it comes to payment plans, this means you either pay in cash or set up a loan to pay off the panels.
  • When you sign a solar lease, you are essentially renting the panels from the solar company and THEY get the tax credit.

3: Your installation has to be complete before you're eligible.

  • Your system has to be installed before December 31, 2022, to receive the 26% tax credit.
  • Example: If you buy a solar system on December 15, 2022 ... you won't get the credit because it's very unlikely your system would be installed before the end of the year.‍

4: Talk to a tax professional.

  • It's best to talk to a tax professional before you make any decisions. Every person's financial situation is unique & different.
  • When it comes time to claim the credit, they will help you fill out IRS form 5695 along with your tax return.

5: The Federal ITC can expire!

  • The ITC drops from 26% to 22% for systems installed in 2023.
  • The tax credit expires starting in 2024 unless Congress decides to renew it.

Important note: Different states offer their own state incentive programs in addition to the Federal ITC! Yay money!

Learn more about the Solar Federal ITC from Energy.gov.

Sounds pretty good, right?

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