The federal government created an investment tax credit (ITC) for homeowners to encourage home energyi efficiency and the adoption of clean, renewable energy. That’s great news for you because it equals 26% of the cost of your solar energy system! More good news: the tax credit was recently extended through 2022 and there’s no cap on the cost of the system!
The tax credit applies to these solar power system costs and more:
- Designing it (“engineering”)
- The components ― solar panels, microinverters, racking, wiring, etc.
- Shipping costs
- Permitting and inspection fees
- Installation and electrician fees
- Sales tax on eligible expenses
Qualifying for the solar tax credit is very straightforward. You must:
- Own the home on which the system is installed; and the home is your primary or secondary residence
- Purchase the system in cash or with financing (this excludes leasing and PPAs)
- Have the system substantially installed by the end of that year
For example, if your system is installed in 2021 and it costs $15,000, you will receive a $3,900 tax credit ($15,000 x 0.26). To claim the credit, you must provide receipts and file IRS Form 5695 or the electronic equivalent as part of your tax return. You’ll calculate the credit on the form and then enter the result on your 1040. If your credit is larger than your income tax due, you can apply the extra credit to next year’s taxes and subsequent years. Learn more from energy.gov.
Please talk to us ― and your tax advisor ― if you have any questions.