Federal solar tax credit: frequently asked questions
The federal solar tax credit is the most popular solar incentive program in the United States. Also known as the solar investment tax credit (ITC), the solar tax credit has made it possible for more homeowners to enjoy the benefits of clean energy by making solar more affordable.
Until the end of 2022, the federal tax credit is equal to 26% of the total cost of your solar installation. But does anything else qualify for the solar tax credit, like energy storage or solar pool heaters? Can you get the ITC more than once? Are you still eligible if you install the panels yourself?
In this article, we’ll answer these, and other frequently asked questions about the federal tax credit. But, before we get into our frequently asked questions, let’s go over what exactly the solar tax credit is.
On this page:
- What is the solar tax credit?
- Who is eligible?
- Is there an income limit?
- Does energy storage qualify?
- Can you claim it more than once?
- Can someone else claim it for you?
- Can more than one homeowner claim it?
- Can you claim it along with the EV tax credit?
- Do rental properties qualify?
- Do you have to use it to pay off your solar loan?
- Can you claim it for DIY solar panel installations?
- Can you claim it for solar pool heating?
- The ITC can help you afford solar
What is the federal solar tax credit?
The residential solar tax credit is equal to 26% of the total costs of installing solar panels on your roof. The tax credit is applied to your federal income taxes.
Originally, the solar tax credit was equal to 30% of the installed costs of solar. But, the tax credit is on a “step down” schedule, so the amount you can get for installing solar decreases each year. Between 2020 and 2022, you are able to receive a 26% credit for installing a solar panel system on your home. In 2023, it will step down again to 22% before expiring entirely in 2024.
This means if you install a solar panel system before the end of 2022, you will be eligible for a 26% federal tax credit. So, let’s say you installed a solar panel system for $15,000. Your tax credit would be equal to 26% of $15,000, or $3,900. That brings the cost of installing your solar system to just $11,100!
Frequently asked questions about the federal solar tax credit
The following questions are the ones we hear the most from homeowners who are considering making the switch to solar.
Keep in mind, we are not tax experts and cannot give tax advice. Your best bet is always to contact an expert to answer any questions you have before proceeding with a solar panel installation.
Who is eligible for the federal tax credit?
In order to qualify for the solar tax credit, you must be the owner of the solar panels and you must owe federal income taxes. That means if you enter a solar lease or a solar PPA, you will not qualify for the tax credit because you will not be the owner of the system.
Is there an income limit for the solar tax credit?
There is no maximum income limit to be eligible for the ITC, but you must make enough income to owe taxes during the year. In order to claim the amount of the credit, your tax liability must be equal to the amount of your credit, after all other credits have been calculated.
Does energy storage qualify for the tax credit?
Home solar batteries qualify for the ITC under certain conditions. IRS guidance number 201809003 specifies that battery installations for which “all energy that is sussed the charge the battery can be effectively assured to come from the solar energy system” are eligible for the full solar tax credit.
Can you claim the federal solar tax credit more than once?
Yes. If you’d like to add solar panels to an existing solar system, or add a new installation to a home that already has solar panels, you can claim a tax credit based on the additional cost. Talk with a tax expert about the details, like whether you can claim the cost of replacing your original solar inverter with one that can handle additional panels.
Can someone else claim your solar tax credit if you can’t?
In order to claim the credit, you must own the home where the panels are installed. If you jointly own a home with another person and they have income while you don’t, they can claim the full amount of the tax credit, as long as they paid for the solar panels.
Can two owners of a home each claim a portion of the tax credit?
Yes. If you jointly own a home with someone else that you’re not filing jointly with, you can each claim the tax credit based on the percentage of costs you actually paid. For example, a parent and child who are both listed as owners on a home’s title can each claim their portion of the tax credit.
Can you claim the solar tax credit in the same year you claim the electric vehicle tax credit?
You can claim both the solar and electric vehicle (EV) tax credits in the same year, but you have to have at least enough tax liability to claim the EV credit.
For example, if your EV credit would be $7,500 and your solar tax credit would be $5,000, you’d need at least $12,500 in taxable income to claim both. If your tax liability is less than the combined amount of both credits, you’ll carry the excess solar credit amount forward to the next year.
Do rental properties qualify for the solar tax credit?
The IRS says you can claim the ITC for a home you own and use as rental property, but you must also live in the home. If you live in the home only part-time, you must use a percentage of the solar costs equal to the percentage of the year you live in the home to calculate the credit.
Do you have to use the tax credit to pay off your solar loan?
Many solar companies offer loans with a special, low monthly payment to customers who will pay an amount equal to their tax credit towards the principal of the loan within the first 12-18 months of the loan.
This is known as a “balloon payment”, and while it can be beneficial to keep monthly costs down, some people choose to keep their tax credit money and instead pay a larger monthly payment. We are not aware of any solar financing companies that require a balloon payment as a condition for taking the loan.
Can you claim the solar tax credit if you install solar panels yourself?
Yes, DIY solar installations are eligible for the federal investment tax credit, but only costs for equipment, paid labor, permitting, and administration are eligible. You cannot claim your own labor as a cost to install solar if you did the work yourself.
Can you claim the credit for solar pool heating?
There is no federal tax credit for solar pool heating systems. In fact, the IRS states plainly that “Costs allocable to a swimming pool (or) hot tub...don’t qualify for the residential energy efficient property credit.”
The solar tax credit can help you afford solar
The best way to get all of your solar tax credit questions answered is to get in contact with a local solar installer. They’ll be able to guide you through what you qualify for and how to get it. You can also contact a tax consultant to get more guidance on some of the IRS rules and regulations.
The solar tax credit will make it easier for you to make the switch to solar, without breaking the bank. But remember, the tax credit is set to decrease at the end of the year, so in order to maximize your solar savings, the time to install solar panels is now!
Author: Ben Zientara | Solar Policy Analyst and Researcher
Ben is a writer, researcher, and data analysis expert who has worked for clients in the sustainability, public administration, and clean energy sectors.