FEDERAL SOLAR TAX CREDIT
Learn about what federal tax credits you qualify for.
2020 is the last year to qualify for a 26% Federal Solar Tax Credit Both homeowners and commercial operations are eligible for the Federal Solar Tax Credit (FTC). However, each year after 2019 the percentage of the Federal Tax Credit has been decreasing, and after 2022, homeowners will no longer be eligible for the FTC.
The Federal Solar Tax Credit also known as the Investment Tax Credit (ITC) reduces the cost of going solar by deducting 26% from federal taxes owed. This tax credit can help you take a significant amount off the cost of your system. A tax credit reduces the amount of your tax liability, unlike a tax deduction, which reduces the amount of your taxable income. For example, if you owe $3,000 in taxes and you have a tax credit of $1000, then you would only owe $2000. If you owe $500 in taxes and you have a tax credit of $1000, then the $500 would be paid and the additional $500 would roll over to the following year. Let’s say you get a $1,000 tax refund every year when you do your taxes. Will you be eligible for the Solar Tax Credit? Very likely, yes! This doesn’t mean you don’t pay taxes to the Federal Government, it just means that they withheld more than what you owed that year. If you take advantage the Solar Tax Credit, it will decrease what you owe to the Federal Government by 30% of your solar project cost. This means that you will probably get a larger tax refund the year you go solar.
The federal tax credit will be available at 26% until December 31st of 2020, after which it will step down to 22% through 2021. After 2021, Federal tax credits will only be available for commercial projects. Federal tax credits are non-refundable, which means you must pay taxes in order to claim the credit. Calculate and claim your federal tax credit by using Form 5695. This form can also be used to carry over the credit from a previous year. The percentage associated with your year of interconnection will remain the same for all subsequent tax forms each year until the credit is fully redeemed.