Perhaps the solar tax credit is one of the key factors in your decision to invest in solar for your home, or maybe you’re just learning about it now. Either way, the solar tax credit can help you get back a good portion of your solar system project costs.

Today, we’re going to go over what the solar tax credit is, when it expires, and how to make sure you get the money you deserve while you still can.

An Overview of the Federal Solar Tax Credit

Dubbed the Solar Investment Tax Credit, the solar tax credit came about from the Energy Policy Act of 2005. Originally, the tax credit was set to expire back in 2007. But because it was so popular and was inspiring thousands of American homeowners to invest in solar, they extended it multiple times.

So, what does this tax credit entail? Well, 26% of your total project costs—which include equipment, permitting, installation and other costs incurred to complete the project like roofing, tree clearing, etc.— can all be claimed as a credit on your next federal tax return. Essentially, this tax credit is a reduction in the income tax you owe.

To qualify for the credit, you need to own the system. So, if you’re leasing it, you, unfortunately, don’t qualify and will be unable to take advantage of the credit.

When Does the Solar Tax Credit Expire?

Technically, the solar tax credit doesn’t expire until 2022. However, that doesn’t mean you should wait until you claim the credit. This is because 2020 is the final year you can claim the whole 26%.

If you wait until 2021 to claim the solar tax credit, the percentage you’ll get back goes down to 22% of the total project cost. And in 2022, the percentage dips down to 0%. So, if you’ve already filed your tax returns for 2020, don’t panic. You’ll still be able to get a sizeable chunk of your investment back.

It should be noted that while 2021 is the last year homeowners can claim any portion of the tax credit, commercial projects can still get 10% of their initial investment back in 2022.

Claiming Your Federal Solar Tax Credit

Step one of claiming the solar tax credit is to keep track of/collect all the receipts from the project. The government requires a detailed paper trail for their tax credits, and this one is no different.

Your next step will be to file form 5695 with your 1040 individual tax return. As long as you owe taxes and own the solar system, you should be eligible to file this form. Complete the form and add up your renewable energy credits, then add this credit information on your form 1040.

Once you submit your tax return, in the next several weeks, you should find out whether or not your claim was accepted. And, as long as you filed it correctly, you should receive the credits you deserve. Holding on to your receipts from the project until you confirm that your claim was approved is a good idea, as you’ll have a physical paper trail to prove to the IRS those expenses were incurred in the event of an audit.

Choosing to incorporate solar into your home is a fantastic investment, especially with the federal tax credit. Make sure you make the solar credit claim on your next tax return to make that investment even better!

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