Everything You Should Know About the Solar Tax Credit

If you’ve been thinking about installing solar panels on your home but feel unsure about the financial investment, you’re not alone. For many homeowners, the upfront cost is one of the most significant barriers to going solar. However, there’s good news—solar energy isn’t just an environmentally friendly choice; it’s also financially rewarding, thanks to government incentives like the solar tax credit. For homeowners eager to save on their energy bills and contribute to a greener planet, the solar tax credit could very well be the game-changer you need. Continue reading to learn everything you should know about the solar tax credit.

What Is the Solar Tax Credit?

The solar tax credit, formally known as the investment tax credit (ITC), is a federal incentive designed to make solar energy systems more affordable. When you install a solar photovoltaic (PV) system, this credit allows you to deduct a percentage of the installation cost from your federal taxes. This makes transitioning to solar energy a less daunting financial commitment for many homeowners.

By reducing the overall cost, the solar tax credit encourages more households to adopt renewable energy, accelerating the nation’s shift toward sustainability. For homeowners, this means more than just saving on installation costs. It’s about locking in long-term energy savings while simultaneously helping to reduce the carbon footprint of your household.

Who Is Eligible for the Solar Tax Credit?

Understanding whether you qualify for the solar tax credit is one of the most important steps in taking advantage of this incentive. The eligibility criteria are relatively straightforward, but knowing what it covers can save you from unnecessary confusion.

The credit applies to any solar photovoltaic (PV) system installed on a residential property in the United States. This includes new homes, existing homes, and even secondary residences, such as vacation properties. However, you cannot apply the credit to rental properties where you don’t reside. Additionally, you must own the solar system outright or finance its purchase through a loan. If you’re leasing the panels or participating in a power purchase agreement (PPA), you won’t be eligible for the credit since you don’t own the system.

The credit extends beyond solar panels. It also applies to other integral components of the system, including mounting equipment, inverters, batteries for energy storage, and installation labor costs. However, any non-essential enhancements or upgrades unrelated to solar energy generation won’t qualify for the credit.

How To Claim the Solar Tax Credit

If you meet the eligibility requirements and have installed a solar PV system on your home, claiming the solar tax credit is a relatively simple process. It involves completing the appropriate forms during tax season and ensuring you document all your expenses thoroughly.

First, you’ll need to fill out IRS Form 5695, which is specifically for residential energy credits. This form requires you to provide details about the cost of your solar installation, including the equipment and labor expenses that qualify for the credit. You will then transfer these totals to your 1040 Form as part of your individual tax return.

Keep all receipts and invoices related to the purchase and installation of your solar system. These documents will serve as proof of your expenses if the IRS has any questions or concerns about your claim. Taking this extra step ensures that you have all the necessary paperwork in order, leaving no room for errors or delays in processing your return. For those who aren’t confident navigating tax forms on their own, working with a tax professional is always an option. Experienced professionals are familiar with energy-related tax incentives and can ensure you correctly file your claim while helping you maximize your benefits.

The Benefits and Savings of Going Solar

Beyond the solar tax credit itself, installing solar panels presents a spectrum of financial, environmental, and practical benefits for homeowners. First and foremost, the cost savings can be significant. By reducing your reliance on grid electricity, you’ll see lower monthly energy bills almost immediately. Depending on where you live and the size of your solar system, these savings can accumulate to thousands of dollars over the lifespan of your panels.

The solar tax credit amplifies this advantage by offsetting a large portion of your initial costs, but the long-term savings make it even more worthwhile. Once you install and pay off your solar system, much of the electricity it generates is essentially free. This makes solar energy a smart investment for anyone looking to stabilize their utility costs and save money over time.

Adding a solar energy system to your home also increases its market value. Homes equipped with solar panels typically sell for a premium, attracting buyers who are eager to adopt sustainable living without the upfront hassle of installation.

Of course, the environmental impact is another undeniable benefit. Switching to solar power reduces your home’s carbon footprint, contributing to cleaner air and a healthier planet.

Clearing Up Common Misconceptions

Despite the growing popularity of solar energy, there are still widespread myths that may cause hesitation when it comes to pursuing a solar installation. One of the most prevalent misconceptions is that the solar tax credit only applies to homeowners in sunny states. While higher sun exposure results in higher energy generation, the solar tax credit is available nationwide, regardless of where your home is.

Another misunderstanding is that the credit is only for large, expensive systems. In reality, the solar tax credit applies to systems of all sizes, making it accessible for a variety of budgets and energy needs. Small-scale battery storage solutions installed alongside your solar panels are typically eligible for the credit, addressing another common point of confusion.

Finally, some individuals mistakenly believe the credit is a refund that arrives as a direct payment. This is not the case. The solar tax credit is a reduction in your owed taxes, which can significantly offset your financial responsibility during tax season. Understanding these details can help you avoid misinterpretation and take full advantage of the opportunity.

Make the Switch to Solar

By understanding what you should know about the solar tax credit, you can make an environmentally and financially smart choice. From cost savings to increased home value, solar panels bring an array of advantages that make them a compelling investment.

If you need solar energy in RI, Newport Solar can help you take the first step toward a brighter, greener future. We can energize your home with our efficient solar panels. Plus, our seamless installation process ensures our systems will produce clean, renewable energy for years to come. As a local and family-owned company with a perfect 5-star Google rating, we’ve been helping Rhode Island residents reduce their carbon footprint since 2009. If you want to make the switch to solar energy and take advantage of the solar tax credit, contact us today for a free consultation.