Solar Tax Credit Summary for Individuals and Businesses

Solar Tax Credit Summary for Individuals

The Residential Clean Energy Credit is available through 2034 for individuals.  Homeowners who install a solar PV system receive a non-refundable tax credit of 30 percent after 2021 and before 2033 (26% and 22% for installation complete in 2033 and 2034 respectively).  This is a direct reduction of your tax.  

There is no income limit on the ITC program; nor is there a maximum credit, but you must own the system as well as the property.  Although there are exceptions to property ownership to allow the credit for co-operatives.

If you don’t have sufficient tax to claim the tax credit in one year, the remaining credits “carry forward” to future years as long as the program has not expired (currently 2034 for residential customers).

The ITC covers all material and installation costs including energy storage (such as batteries) and certain costs related to the preparation of the location (such as tree removal).  The credit is applicable to primary and secondary residences. The solar installation must be completed during the year you claim the credit.

Individual Illustrative Example

If you spend $40,000 on a solar system, you can claim a tax credit of 30% on your federal taxes. $40,000 x 30% = $12,000 credit

Therefore if your annual tax liability is $8,000 before withholdings and your withholdings are $6,000, the $12,000 credit would reduce your $8,000 tax liability to $0.  The remaining $4,000 credit can be carried forward until it is exhausted.  And you would receive a refund of your $6,000 withholding. 

In order to take advantage of the Solar ITC as soon as possible, a buyer can decrease their federal income tax withholding, anticipating that the credit will reduce their tax bill.  This allows the buyer the dollar value of the credit in advance of filing their tax return.  For financed systems, the extra funds can be used to pay down the solar loan before the 18th month when the rate locks.

Solar Tax Credit Summary for Businesses

The Investment Tax Credit is also available for businesses that install solar systems between 2022 and 2033.  The credit is up to 30% of the cost including installation of the system if particular requirements are met.  Please inquire about the details.

 *We are not tax professionals and the above information is meant for information purposes only based on our research.  Please consult your tax advisor for specific advice.

Askey, Askey & Associates, CPA, LLC is our preferred accounting firm.  The tax credits discussed here may change under new legislation or additional guidance from the Internal Revenue Service.  To review the most recent details of these tax credits, please visit  https://www.irs.gov/forms-pubs/about-form-5695.  To set up a tax consultation to further discuss the energy credits available to you, you may contact Askey directly at 301-475-5671 or admin@aaacpa.com