Solar Tax Credit

The Federal Solar Tax Credit

In August of 2022, Congress passed the Inflation Reduction Act. The legislation both increased and extended the investment tax credit (ITC) for residential photovoltaic (PV) systems. This is sometimes referred to as the Residential Clean Energy Credit. The tax credit was raised to 30% through the year 2032. Note, this is a tax credit, which is different (better) than an exemption or deduction.

In order to claim the tax credit, you must have a tax liability. If your tax credit exceeds your annual tax liability, you can rollover the remaining credit to future tax years. You must own your PV system. Leased systems are not eligible. The tax credit is based on the total cost of your project. This includes the PV modules, inverters, wiring, batteries, and installation labor.

Here’s an example. Let’s say that the full cost of your PV system is $30,000. 30% of that amount is $9,000. If your system is installed in 2023, you will have a $9,000 tax credit when you file your 2023 tax return. If you would normally owe the IRS $10,000, you will only owe $1,000. If your tax liability for 2023 was $6,000 then you would roll the remaining $3,000 credit over to your 2024 return. You will not receive the difference as a refund.

Businesses and non-profit organizations may qualify for a solar tax credit. Please check with your accountant for more information. You should also check with your accountant if you are installing solar on a residential property (second home or rental) that is not your primary residence.