FEDERAL INVESTMENT SOLAR TAX CREDIT

HOW IT WORKS

The Federal Solar Investment 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 FUTURE OF THE ITC

The federal tax credit is currently at 26%.  Federal investment tax credits are non-refundable, which means you must pay taxes in order to claim the credit.

Calculate and claim your federal investment 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.