The state of California offers many lucrative solar tax credit programs. Making it essential for homeowners considering solar energy here to learn how to claim a solar tax credit in California. In this guide, we’ll explain how the California solar tax credit works and what are its eligibility criteria.
How Does the California Solar Tax Credit Work?
California has discontinued its state solar tax credit, but there is still a federal solar tax credit available. This federal tax credit is valued at 30% of the total cost of installing a solar and/or battery system. By utilizing this credit, you can reduce your federal tax liability and potentially increase your tax refund.
For instance, if you have a $15,000 solar system, the federal solar tax credit can lower your tax liability by $4,500. In case your tax liability is insufficient to claim the full credit in one year, you have the option to carry forward the remaining amount to future tax years. This explains how the California Tax Credit works. Now, let’s see how to claim the solar tax credit in California.
Note: It’s always advisable to seek guidance from a licensed tax professional before applying for the solar tax credit.
How to Claim Solar Tax Credit In California For Maximum Savings
The following steps explain how to claim the solar tax credit in California for maximum savings-
1. Determine Your Eligibility
To claim the solar tax credit, you are required to own the property as well as the solar panels. Additionally, you also must pay enough taxes to the federal government to qualify for the tax credit.
2. Install a Solar Panel System
To be eligible for the solar tax credit, you must install a solar panel system.
3. Complete IRS Form 5695
You need to complete IRS Form 5695 to claim the solar tax credit. In part l of the form, you’ll need to calculate the credit.
Also Read: Can You Claim Solar Tax Credit Twice?
4. Add the Credit to Your Tax Return
After you are done completing Form 5695, you’ll need to add the credit to your tax return. You can add the credit to Form 1040 and Schedule 3.
5. Apply Credit Towards Your Solar Loan
In the case, you have a solar loan, you have the option to allocate the entire value of the tax credit toward your loan. This can be done as a lump sum payment equal to 30% of the total loan amount or as multiple payments made before the loan is recast.
Also See: Is Off-Grid Solar Legal in California?
6. Check for Other Incentives
Apart from the federal solar tax credit, California offers various other incentives for solar energy systems. These include statewide incentives, Solar Energy System Property Tax Exclusion, utility company credits, and rebates. To determine which property tax is best for you, it is recommended that you get in touch with your local assessor’s office for more information and guidance.
7. Consult a Licensed Tax Professional
Lastly, seeking advice from a licensed tax professional is highly recommended when it comes to applying for the solar tax credit.
To conclude, the process to claim the solar tax credit in California is quite simple. You just need to remember to install a qualifying solar system, ensure your eligibility, gather the required documentation, fill out the relevant tax forms accurately, calculate the tax credit amount, and file your tax return accordingly.
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