Federal Solar Investment Tax Credit (ITC)
The U.S. Energy Policy Act of 2005 created the solar Investment Tax Credit (ITC) to harness the sun’s powerful potential.
The solar ITC is a federal tax credit for those who purchase solar energy systems for residential properties.
The federal solar ITC gives you a dollar-for-dollar reduction against your federal income tax equal to a percentage of the cost of your solar system, which includes solar panels, installation, and a home battery to store the energy.
How much is the ITC?
- Homeowners receive a 26% tax credit for solar systems placed in service before 12/31/2022.
- Homeowners receive a 22% tax credit for solar systems placed in service after 12/31/2022 and before 01/01/2024.
- The solar Investment Tax Credit (ITC) will be eliminated on January 1, 2024.
What is a tax credit?
A tax credit is not a tax rebate. While a rebate pays you back, a credit offsets the balance of tax due. So, if you owe little to no federal taxes there is little to nothing to offset, and you won’t be able to take full advantage of the credit.
How do I receive my credit?
To receive your credit, you must complete IRS Form 5695 when you file your taxes and add your renewable energy credit information to your typical form 1040. Popular federal tax filing software includes this credit as a default. If you use an accountant or tax processor, tell them that you purchased solar.
How do I qualify for the ITC?
To qualify for the federal solar ITC, you must meet the following requirements:
- You must own your home. Renters are not eligible.
- You must own your solar panels. If you lease them, you cannot directly claim the tax credit.
- You must pay enough taxes to the federal government to qualify for the tax credit. It’s a tax credit, not a rebate.
Do I need to purchase my system?
You may not have to buy a solar system outright to take advantage of the ITC. It’s possible to claim the credit with a solar loan, and sometimes the savings can be passed along as part of the solar lease.
- Purchase: You own the system, energy, and tax credits.
- Lease: The ITC savings can be passed along as part of your lease contract.
- Loan: You may be entitled to the full ITC (even if you put $0 down).
* Depending on your individual circumstances, you may or may not qualify. Dean Solar does not warrant, guarantee or otherwise advise its customers about specific tax outcomes. Consult your tax advisor regarding the solar ITC and how it applies to your specific circumstances. Tax credits are subject to change. Please visit the dsireusa.org website for detailed solar policy information.
Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid.
For example, if a residential customer has a PV system on their roof, it may generate more electricity than the home uses during daylight hours.
Many states have passed net metering laws. In other states, utilities may offer net metering programs voluntarily or as a result of regulatory decisions.
Differences between state legislation, regulatory decisions and implementation policies mean that the mechanism for compensating solar customers varies widely across the country.