The federal solar tax credit (residential) is a tax credit that can be utilized on federal income taxes for a portion of the solar PV system expenses covered by the taxpayer. This credit is applicable to solar PV systems installed during the tax year.
For solar PV systems installed in 2020 and 2021, a 26% tax credit is available. In August 2022, Congress extended this Investment Tax Credit (ITC) to 30% for systems installed from 2022 to 2032 (Systems installed on or before December 31, 2019, were also eligible for a 30% tax credit). The ITC percentage will reduce to 26% for systems installed in 2033 and further decrease to 22% for systems installed in 2034. Unless Congress renews it, the tax credit will expire beginning in 2035.
There is no limit on the total amount that can be claimed.
Who is Eligible to Claim the Federal Solar Tax Credit?
You might be eligible for this tax credit if you meet the following criteria:
1. Your solar PV system was installed between January 1, 2017, and December 31, 2034.
2. The solar PV system is located at a residence of yours in the United States.
3. You Either:
- You own the solar PV system (i.e., you purchased it with cash or through financing but you are neither leasing the system nor paying a solar company to purchase the electricity generated by the system).
- Or, you purchased an interest in an off-site community solar project, if the electricity generated is credited against, and does not exceed, your home’s electricity consumption.
Notes: The IRS issued a statement allowing a particular taxpayer to claim a tax credit for purchasing an interest in an off-site community solar project. However, this document, known as a private letter ruling or PLR, may not be relied on as a precedent by other taxpayers. Moreover, you would not qualify if you only purchased the electricity from a community solar project.
4. The solar PV system is new or being used for the first time. The credit can only be claimed on the original installation of the solar equipment.
Which Expenses are Considered for the Federal Solar Tax Credit?
The following expenses are considered for the federal solar tax credit:
- Solar PV panels or PV cells (including those used for attic fan power, but excluding the fan itself).
- Contractor labor costs associated with on-site preparation, assembly, or the initial installation, which encompasses permitting fees, inspection charges, and developer fees.
- Balance-of-system equipment, encompassing wiring, inverters, and mounting apparatus.
- Energy storage devices with a capacity rating of 3 kilowatt-hours (kWh) or more (for systems installed after December 31, 2022). Even if the storage is installed in a different tax year from the solar energy system, it remains eligible, but it must still adhere to the installation date requirements. Please note that a private letter ruling cannot be used as a precedent for other taxpayers.
- Sales taxes related to eligible expenses.
Must Read: Can You Claim Solar Tax Credit Twice?