The federal government offers tax credits to encourage the adoption of renewable energy. These tax credits are 30% of the net cost of your solar electric system.
What is a tax credit?
Unlike a tax deduction that takes money off your taxable income, tax credits will reduce your taxes by a specific dollar amount, directly offsetting your bill. Of course, you do have to be paying taxes to benefit from tax credits.
Who qualifies for the 30% federal tax credit?
If you have recently put a solar electric system in service on your property, you qualify for a 30% federal tax credit.
To receive the tax credits for a residential solar system, the home with the system doesn’t have to be your primary living place. So if you put solar on a second home, you’ll still qualify for the 30% tax credit. If you are renting your home, however, you would not qualify.
Is that 30% of the total cost or do they calculate it differently?
First, determine the gross cost of your solar electric system, including all equipment, labor, and qualified expenditures.
Next, subtract any rebates you received from your utility company and/or state. The tax basis by which your tax credit will be determined is calculated after any state or utility rebates have been subtracted. Unless they qualify as income on your taxes, these rebates need to be subtracted before calculating your 30% federal tax credit.
This will give you the net cost of your project, which will be used to calculate your tax credit.
Does this apply to DIY solar electric systems?
Yes. Just like any other solar electric system, a DIY solar system qualifies for the 30% federal tax credit.
If you hire help for your DIY project, have them write you an invoice for their labor and bill you. Just remember, as in any case, to save ALL your receipts for tax purposes!
What form do I use?
Use the IRS Form 5695 to claim your tax credit, and submit this document with your taxes.
Be sure to keep all receipts and Manufacturer’s Certification Statements for your records.
For more information about incentives in your area, visit dsireusa.org.