Guide to Federal Tax Credit for Residential Solar PV
A residential solar energy system is one of the best ways to lower your electricity costs. Federal, state, and local organizations have established incentive and rebate programs to lower the cost of installation. The hope is to encourage more solar systems installed for homes and businesses. The IRS offers a Federal Income Tax Credit (ITC) on solar power systems. The Solar ITC allows home and business owners to deduct 30% of the cost of installing solar from their federal income tax. In effect, that means a 30% savings off of the list price.
To make it easier, let’s put some numbers to it. The average cost of installing a solar panel system in California is around $25,000. At that price, the solar tax credit can reduce your federal tax burden by $7500. If your total tax burden were $10,000, the IRS would allow the remaining $2,500 to be carried over to the following year.
Step 1: Check Your Eligibility
You must own your solar energy system to be eligible for the Federal Income Tax Credit. If you lease your solar paneling system, then you will not qualify for the Federal ITC.
Step 2: Complete IRS Form 5695
KEEP IN MIND: We are solar guys, not tax guys. We do not give tax advice, and anything you read on this page is merely one example of how someone might act. Please consult a tax professional before filing.
The 5695 Form is for Residential Energy Credits. With some simple math and double-checking of your receipts, you’ll include your final tally on Line 53 of IRS Form 1040. To make the example simple, we’ll use the following numbers:
Filling out Form 5695
The IRS Form 5695 will calculate residential energy credits from 2 parts: residential energy efficient property credits and nonbusiness energy property credits. The Residential Energy Efficient Property Credit will calculate total solar savings minus any other purchases you’ve made throughout the year. Nonbusiness Energy Property Credits include any energy-efficient improvements to your residence. The 2 parts will be added together and included on Line 53 of Form 1040.
Step 3: Add Renewable Credit Information to Your 1040
Write in total on Line 15 of Form 5695 into Line 53 of Form 1040. And that’s it!
If you’ve never claimed any solar panel installation tax credit before, then the calculations are quite simple and straightforward. The solar tax credit adds a minimal amount of extra effort for what could be a lot of savings on your final tax burden. Every homeowner who’s invested in a solar energy system should take advantage of this fantastic government incentive. We suggest you review this information with your tax expert before filing.
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