This tax credit incentive is specifically for solar PV systems, where the solar panels contain PV cells and convert the sunlight into usable electricity for the home. This is different than solar panels that are just basically solar heaters that supply hot water and not electric power. It also should be noted that this tax credit incentive is not permanent, it is a temporary government program. Details regarding this and the tax credit’s other rules are discussed below.
Eligibility for the residential solar federal tax credit is based on meeting all of the following criteria:
• Your solar PV system is fully installed and operational by December 31, 2023.
• The solar PV system is located at and used to power your primary OR secondary residence located in the United States.
• You own the solar PV system, meaning you purchased it outright from the start with or paid through financing, but you are neither leasing nor renting the PV system.
• The solar PV system is new and being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment.
The following expenses are eligible for the tax credit:
• The solar PV panels and PV cells used to convert sunlight into electric power for the home.
• Contractor labor costs for onsite preparation, assembly, and original installation – including permitting fees, inspection costs, and developer fees.
• All other necessary equipment costs, including wiring, inverters, and mounting equipment.
• Energy storage devices (power supply batteries) that are charged exclusively by the associated solar PV panels; including storage devices that are placed in service in a subsequent tax year to when the original solar energy system is installed.
• Sales taxes incurred on the above eligible expenses.
– For PV systems installed and made operational by Dec. 31, 2022: 26% Tax Credit
– For PV systems installed and made operational by Dec. 31, 2023: 22% Tax Credit
The credit is dollar for dollar against any income tax liability you have for the given year, for example if you place a PV system into service during 2022, your tax credit would be 26% of eligible expenses. If these expenses were $10,000, your tax credit would be $2,600 – which would be applied towards any taxes you owe with you 2022 tax return. Thus, if your tax return shows that you owe $3,000 – you can fully apply the tax credit of $2,600 – and only have to pay the IRS the remaining $400 balance.
However, this tax credit is not a “refundable” or cash type of credit. It can only be applied to the taxes you have due on your tax return. If the credit amount is higher than your taxes due, the remaining credit amount will not be paid to you, but it can be carried over to the next tax year. You can apply for and receive this tax credit by completing and attaching IRS Form 5695 to your federal tax return (Form 1040 or Form 1040NR).
– A vacation home is eligible provided it is a residence of the taxpayer – it can not be a property that you rent out.
– While you are eligible for the credit even if you finance the PV system, any interest or other credit related fees are not eligible expenses; neither are warranty fee costs.
– If the PV is being installed and used for a coop or condo building in which you reside, then the eligible expenses you pay are covered. However, you are not eligible if you are a renting tenant.
– If your residence also contains a business operation, then the PV system must be used at least 80% for the residential space.