Federal Solar Tax Credit and Incentives
Everything you need to know about the federal solar tax credit.
Thad Warren
October 2021
4 Minutes
Find out in less than a minute.
The federal solar tax credit is the personal tax credit available to homeowners who purchase a new solar system. Currently, homeowners receive 26% of the cost of their system in a federal tax credit. For most homeowners that means a $4,000 to $6,000 tax credit for going solar. The actual credit will depend on a few factors like the size of your system.
In practice the solar tax credit would look like this:
Cost of solar system = $20,000
Solar tax credit (26%) = $5,200
Price of the solar system after tax credit = $14,800
All US residents can receive the federal solar tax credit. This tax credit deducts 26% of the cost of installing a solar energy system. This credit is available for both residential and commercial systems. The sooner you take advantage of this credit the better because as time goes on the amount of the credit diminishes.
Any US taxpayer who purchases a new solar system installation is eligible for the federal solar tax credit. The keyword is “purchase”. Solar leases and solar PPAs are not eligible for the tax credit.
So if you pay upfront or finance your solar panel system and file federal income tax you can receive this tax credit.
The brand of your solar panels does not affect your ability to claim the solar tax credit. Nor does other things like the type of inverter you use.
Yes, solar batteries are eligible for the federal solar tax credit. In this document, The National Renewable Energy Laboratory (NREL) outlines the parts of solar systems that are included. It states: “Battery systems that are charged by the renewable energy system 100% of the time on an annual basis can claim the full value of the ITC.”
To claim the federal solar tax credit you must submit Form 5695 to the IRS. It is a relatively simple two-page form that looks similar to a W2 or 1099. After completing the form you will include it when your income taxes.
If you’re thinking about investing in solar it’s important you claim the solar tax credit sooner rather than later. Over the next few years, the benefits of the credit will continue to diminish.
The federal solar tax credit has a series of changes that continue to dissipate over time. The idea being that as solar panels continue to get cheaper and more efficient the tax credit would not be necessary.
Tax credit refunds 30% of the cost of the system for residential and commercial.
Residential and commercial receive a 26% deduction of the cost of the system from their taxes.
Residential and commercial receive a 22% deduction of the cost of the system from their taxes.
Residential tax incentives are no longer available. Commercial owners can deduct 10% of the cost of the system on taxes.
Depending on where you live you may be able to receive various tax credits, rebates, and other incentives from your local government and or utility. The rebates can have a drastic impact on the cost of your solar system so make sure you research all the available options. The DSIRE database built by the NC Clean Energy Technology Center is a great resource to find local incentives.
