How Does the Solar Tax Credit Work?

)The federal solar investment tax credit, also known simply as the investment tax credit (ITC) is the biggest incentive currently available to homeowners across the US. When the ITC was first introduced in 2005, nobody could have foreseen that it would still be in place this year in 2023, but this long-standing solar incentive has been renewed time and time again because of how effective it is at encouraging solar installation across the US. By taking advantage of this incentive, homeowners can save 30% on the cost of their solar installation and maximize their long-term savings. In this blog, we will take a look at how homeowners can apply for the ITC and how it will benefit them in the long term.

How Does the Solar Tax Credit Benefit Homeowners?

Going solar offers homeowners the opportunity to save significantly on their energy bills even without additional incentives or rebates. However, many homeowners would immediately jump at the chance to earn more and get the most out of their investment. The ITC makes this possible.

Shorter Payback Period

By cutting the cost of solar by 30%, you can shorten your solar payback period by several years. At present, homeowners achieve a payback period of 8.3 years on average.

Higher Return On Investment

The more you save on your solar purchase, the more your solar installation will earn you over its 25+ year lifespan. The ITC is a great way to ensure that you are maximizing the amount of money you earn with your solar system after your initial investment is recovered.

Save On Battery Storage

The federal solar tax credit can also be applied to solar batteries, helping cut the cost of battery backup. This means you will save more in the long run while backing up essential appliances with renewable energy and ensuring your energy independence.

How can I apply?

If you own your solar system, as opposed to leasing it, you are eligible for the federal solar tax credit. If the amount you owe in tax is less than the amount you have saved through the ITC, you can carry your savings over to the next tax year. In order to claim your federal solar tax credit, you will need to fill out the following forms:

• IRS Form 5695
• Instructions for Form 5695
• Schedule 3
• IRS Form 1040
• Instructions for Form 1040

Solar Quote does not provide tax advisory services, which is why you should consult a licensed tax professional before proceeding with your ITC application. A licensed tax professional can walk you through applying for the federal solar tax credit and make sure that you are eligible.

What if I don’t owe any tax?

There are two main types of solar incentives- credits and rebates. A tax credit can only be availed only if you owe tax. A rebate, however, can be received no matter whether you owe any tax to the government or not. While there aren’t any nationwide rebates available for solar energy at the moment, many states do incentivize solar energy with state-specific rebates. Depending on which state you live in, you may be able to recover a portion of your investment in solar installation, battery backup or both. For more information on what rebates are available in your state and how to qualify, speak to a Solar Quote solar energy expert today.

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