The residential solar tax credit can put money back in your pocket
So you’ve gone solar and want to apply for the solar tax credit on your 2021 taxes? This blog post will help you do that.
But first, a disclaimer: this blog post isn’t meant to be tax advice, just helpful information. Always consult a trusted tax professional about your own finances and tax decisions.
Okay, let’s get started with how to apply for your solar tax credit. Please be aware that this tax credit is for solar photovoltaic (PV) systems. It does not apply to solar pool heaters.
You should also be aware that the 26% credit on residential solar projects has been extended to apply to systems installed in 2021 and 2022, which is great news! Systems installed in 2023 will still be eligible for a 22% tax credit.
In order to claim your solar tax credit, you will need a copy of the contract you signed when you purchased your solar PV system. If you don’t have a copy of your contract, contact the company who sold you the system. They should be able to provide you with one.
Am I eligible for a solar tax credit?
According to energy.gov, you might be eligible for the tax credit if you meet all of these criteria:
- Your solar photovoltaic system was installed between January 1, 2006 and December 31, 2023
- The system is on your primary or secondary residence in the U.S.
- You own the solar PV system
- The solar PV system is new or being used for the first time
If you’re still not sure if you might be eligible, here’s a quick FAQ. Again, always consult a tax professional about your individual situation.
Am I eligible if I am financing my solar system?
Yes. Since financing assumes you have taken on the financial obligation, you can claim the entire cost of the system.
What if I lease my system?
Leasing a solar system does not qualify you for the tax credit.
What if I am part of a community solar project?
If the electricity generated and credited does not exceed your home’s electricity consumption, the IRS permits you to claim a section 25D tax credit for a portion of a community solar project. Talk to your tax advisor.
What if I purchased my solar system in 2021, but it wasn’t installed until 2022?
The credit only applies to installed systems, but you will be able to apply for the credit in 2022.
What if my system was installed in a previous year, but my tax liability wasn’t high enough to claim the full credit?
You can continue to claim the remaining portion of the solar tax credit for up to five years.
If the system is not on my roof, can I still claim the solar tax credit?
Yes, if the system is on your property, even if it is installed on another structure or ground mount, you can still claim the credit.
Can I claim a solar credit on a vacation home?
Yes. The solar system does not have to be on your primary residence for you to qualify for the credit.
Can I claim a solar tax credit on a rental property?
No. The residential federal solar tax credit cannot be claimed when you put a solar PV system on a rental unit that you own. However, it may be eligible for the business ITC under IRC Section 48. See 26 U.S.C. § 25D(d). Talk to your tax professional.
Will the new legislation in Florida affect my solar tax credit?
No. HB 741 in Florida affects net metering, not tax credits. Also, the legislation states that if your system was installed and turned on before January 1st, 2024, you are grandfathered in under 1:1 net metering standards as well.
What do I need to do on my tax return in order to claim the credit?
After ensuring you are eligible for the credit with a tax professional, you can complete and attach IRS Form 5695 to your federal tax return (Form 1040 or Form 1040NR). IRS Form 5695 looks like this:
IRS form 5695 is used to apply for the solar tax credit.
Instructions on filling out the form can be found here.
What should I do with my tax credit?
It’s your money, so you can do as you please with it! We have solar customers who have used the money for home improvement projects, big family vacations, and other things that are difficult to save for. That said, many solar projects that are financed have a pay structure based on the assumption that you will put the tax credit against your loan. If you don’t put the money against your loan, your monthly payment may go up. Check your paperwork so that you know what to expect.