Claiming Renewable Energy Tax Credits
The Solar Investment Tax Credit is arguably one the best things to happen to solar power in the United States. It has incentivize hundreds of thousands of residential and commercial property owners to make the significant investment in solar panels and reduce their need for fossil fuels. It has also helped make solar commonplace.
In addition to the federal solar tax credit, you can also claim a tax credit from the State of Arizona. This credit can be a nice boost to the federal credit.
While many people who are interested in purchasing solar systems have heard about the Solar Tax Credit, plenty of people don’t know how it works. Below is the information you need to know to claim the credit:
When did the Solar Tax Credit Begin?
The Solar Tax Credit became law under the Energy Policy Act of 2005. At that time the credit was a whopping 30% of the cost to install solar panels. It also was set to expire after two years, but it proved so successful it was renewed in 2008.
Congress renewed it again in 2015, however not at the same rate. In fact, the rate was reduced to 26% and will decrease again until it expires. Here are the details:
- 2005 – 2019 the Solar Tax Credit was 30%
- 2020 – 2022 the Solar Tax Credit is 26%
- 2023 the Solar Tax Credit will be 22%
- 2024 the Solar Tax Credit is set to be 0% for residential solar
The Arizona Solar Tax Credit began in 1992 and currently allows you to take a credit of up to 25% (up to $1,000) off your state taxes. You also do not have to pay sales tax on solar panels in Arizona.
It’s a Solar Tax Credit, not a Solar Tax Rebate
When you buy a solar system, the government doesn’t just cut you a check to help defer the costs. The money is credited to your taxes instead. It is a small but important distinction.
On a system that hypothetically costs $15,000, the tax credit will be $3,900. But you must owe that much in tax to fully use the credit.
If you do not pay much in taxes every year, the credit is less attractive. You can only use the credit against what you owe in taxes. For example, if your tax liability is only $2,000, you will miss out on $1,900 on the example above. Again, you’re not getting a check. However, you can claim the credit over two years, giving you a second chance to claim as much as you can. Also, for homeowners who don’t qualify for the tax credit, using solar energy means you will see substantial savings on your utility bills.
Am I eligible for the Solar Tax Credit?
Not everyone who installs a solar panel system is eligible for the credit. Here is who can claim it, according to Energy.gov:
- You own the home where the panels are being installed.
- You must own the solar panels. You are not eligible if you lease.
- Your tax liability is big enough to claim the credit
- The solar panels are new and have not been installed previously
How Do I Get the 26% Solar Tax Credit?
Because 2022 is the last year you can claim the full 26% credit, your solar system must be placed into service before the end of that year. That means you will have to have everything installed, hooked up to the meter and generating by that time.
There is an incentive to go solar now. If you leave it to the last minute you could risk not having everything installed before the cutoff date.
Paperwork to Claim the Solar Tax Credit
In order to receive the credit from the IRS, you will need to fill out the required paperwork. IRS Form 5695 is a relatively easy (by tax standards, anyway) two-page form that you will submit when you file your personal taxes on tax day. The Instructions for Form 5695 can help clear up any questions or clarify ambiguous language.
Arizona uses Form 310 to file the credit.
Call Fusion Power today to find out how to get started on your solar install and claiming the Solar Tax Credit.