A federal tax credit for expenditures relating to the installation of energy efficient property including solar was created by The Energy Policy Act of 20051 to incentivize the growth of the U.S. solar industry.2 Currently, the law Act created gives eligible homeowners and business owners up to 26% of a solar system’s cost back on their taxes.1 The tax credit starts to step down to 22% in 2023 and is set to end in 2024.2
The Federal Tax Credit Schedule
This article provides general information about the federal tax credit. Sunnova does not provide tax advice, and this article should not take the place of talking to a qualified tax professional. You may be eligible for a federal tax credit with the purchase (loan or finance agreement) of a home solar system. To receive the full tax credit, you must have federal income tax liability at least equal to the value of the tax credit. Additional tax credits may also be available for homeowners in certain states and territories. Sunnova makes no guarantees regarding eligibility for tax benefits.
What is a Federal Tax Credit?
A tax credit is an amount of money that can be subtracted from the taxes you owe the federal government. Tax credits are a dollar-for-dollar reduction in the actual amount of taxes owed.3
To Qualify for the Federal Tax Credit
You must have enough tax liability to take advantage of the tax credit. If you can’t use your entire solar tax credit in the first year, you can roll remaining credits over to future years. However, it is unclear if the solar tax credit can be claimed for systems installed on or after January 1, 2024.4
To qualify for the tax credit, you must purchase your home solar system through a cash payment, loan, or finance agreement. Home solar systems with a lease or Power Purchase Agreement (PPA) are not eligible for the tax credit.
It’s important to note that your home solar system must be placed in-service before you can claim the tax credit.5
To claim the tax credit, you will need to complete IRS form 5695 and include the results of that form on IRS Form 1040. A tax professional can help you complete these forms.
Why Wait to Go Solar?
The cost to install a home solar system has dropped by more than 70% over the last decade.6 Why wait to go solar when you can get an affordable home solar system and maximize your potential federal tax credit? Ask us about adding battery storage! You may be eligible for the tax credit, as well as additional state or local incentives.
1. Energy Policy Act of 2005, Pub. L. 109-58 (Aug. 8, 2005) Title XIII, Subtitle C, §§1335, 1337) available at Congress.gov
- 2. SEIA.org 26 U.S.C §25D(g)(3); 26 U.S.C §25D(h);
- 3. Turbotax 26 U.S.C §25D(g)
- 4. Turbotax 26 U.S.C §25D(h);
- 5. Energy.gov26 U.S.C §25D(e)(8)(a)