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.
Thanks to the popularity of the ITC, Congress has extended its expiration date multiple times, including most recently in December 2020 to extend the ITC at 26% for two additional years. Now, the solar investment tax credit is available to homeowners in some form through 2021. 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.