Federal Solar Tax Credit
Table of Contents
- 1 What is the Federal Solar Tax Credit?
- 2 How Much is the Federal Solar Tax Credit?
- 3 What are the Filing Requirements for Solar Tax Credits?
- 4 Rules for Claiming Solar Credits on Rental Properties
- 5 TurboTax Can Help You Claim the Solar Tax Credit
- 6 How to File Taxes Online in 3 Simple Steps - TurboTax Tax Tip Video
What is the Federal Solar Tax Credit?
The Federal Solar Tax Credit is a credit you can claim for installing solar powered equipment in your home, which can ultimately reduce the amount of tax you need to pay to good old Uncle Sam.
The Environmental Protection Agency and the Department of Energy wants to encourage Americans to switch to solar power through the Energy Star program. In return for reducing your carbon footprint, you can claim the Federal Solar Tax Credit on your taxes.
Solar power is a renewable energy source that can help save the planet and reduce your carbon footprint.
How Much is the Federal Solar Tax Credit?
Did you know that the Federal tax credits for approved solar panel installations could refund you up to 30% of the total installation cost?
The full value of the credit was only available through to the end of 2019. Every year, afterward, the value of the credit decreased in increments, before stopping at the end of 2021. This means you do not have long before it expires completely.
Qualifying equipment includes units powered by solar energy which either heat water or generate electricity.
The credit is available for improvements made to a primary residence or secondary residence.
Since it is a tax credit not a tax deduction, the value of the credit can be taken off your tax payment directly. There is no maximum dollar limit on the credit.
What are the Filing Requirements for Solar Tax Credits?
If you are eligible to claim a Federal solar tax credit, you will need to file Form 5695 alongside your tax returns this year. This form is used to calculate the amount of credit you are entitled to. The result will be added to Form 1040.
This is a non-refundable tax credit, so if the credit is worth more than you owe in Federal taxes, you cannot use the credit to get a tax refund. It is possible to carry the credit value over to the following tax year, however.
It remains unclear as to whether unused solar tax credits will still be able to be carried over after 2021, when the program expires.
Rules for Claiming Solar Credits on Rental Properties
You are not allowed to claim the Federal residential solar credit for installing solar powered units in your rental properties. The only exception is if you live in one of your rental properties for at least part of the year.
The percentage of the credit you can claim is directly correlated with the amount of time you spend there. For example, if you have a vacation home you spend three months at, you can only claim 25% of the total value of the credit.
For example, if you spent $10,000 on a solar system at your vacation home and you spent three months there, you would only be able to claim $750.
This is because the total value of the tax credit would be worth $3,000. And you would only be able to claim a quarter of the tax credit, which ultimately equals $750.
TurboTax Can Help You Claim the Solar Tax Credit
Don’t worry about how to claim the solar tax credit. TurboTax will ask you simple questions and help you claim the energy tax deductions and credits you’re eligible for based on your answers.
If you have questions you can connect live via one-way video to a TurboTax tax expert or CPA. TurboTax Live tax experts and CPAs are available in English and Spanish and can also review, sign, and file your tax return.
How to File Taxes Online in 3 Simple Steps - TurboTax Tax Tip VideoRemember, with TurboTax Online Tax Filing we’ll ask you simple questions and fill out the right forms for you. We’ll find every tax deduction and credit you qualify for to get you the biggest tax refund, guaranteed!
Frank Ellis is a Traverse City Tax Preparation Planner and published author. He has written tax and finance related articles for twelve years and has published over 1000 articles on leading financial websites.