Solar Energy Tax Credits 2021

Are Battery Storage Systems Eligible For The Federal Solar Tax Credit

Yes, energy storage is covered by the 30% tax credit. Thanks to the passage of the Inflation Reduction Act, battery systems paired with solar panels in 2022 can get the full 30% credit.

On average, residential batteries cost between $10,000 and $15,000 to install, so you can expect to receive a tax credit between $3,000 and $4,500 for energy storage. If the battery is installed with solar panels, the battery costs will be bundled with the rest of your solar installation costs. If a standalone battery is installed without solar, you will get a tax credit based on the cost of the battery installation.

Starting in 2023, standalone batteries installed without solar will also be able to take advantage of the federal tax credit. Batteries installed after 2023 must also be at least three kilowatt-hours in size. Most home storage batteries are around 10 kWh in size, so you likely won’t have to worry about the minimum capacity requirement.

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Can I Claim The Federal Solar Tax Credit For Fiscal Year 2021

Any solar-energy system installed after Jan. 1, 2006, is eligible for the one-time credit.

If your system was installed and generating electricity in your home last year then, yes, you can claim it. But if you buy and install one this year, you’ll have to wait until next tax season to deduct the credit.

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The Federal Investment Tax Credit

At the federal level, youll qualify for the federal solar Investment Tax Credit . In 2021, the ITC will provide a 26% tax credit on your solar panel installation costs, provided that your taxable income is greater than the credit itself.

For most homeowners, this effectively translates to a 26% discount on your home solar system. So, if your system costs $20,000, the ITC would enable you to claim around $5,200 as a credit on your taxes.

Solar Credit For Rental Property

Installing solar power at rental buildings you own will not qualify you for the residential solar credit. However, you can claim it if you also reside there for a portion of the year and rent it out the rest of the time.

• To account for the time you arent in a vacation home or rental property, you must reduce the credit.
• You can only get 25% of the credit, for example, if you only spend three months there each year. You might claim 25% of the systems cost, or $650 if the system cost $10,000. The 26% credit would be $2,600.
• $10,000 system cost divided by 0.26 equals $2,600 in credit.
• $650 in credit equals $2,600 credit amount multiplied by 0.25 .

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Are You Eligible To Claim This Federal Government Solar Incentive

In order to claim the federal solar tax credit of 30% and get money back on your solar investment, you have to meet the following criteria when filing your 2022 taxes:

• Your solar PV system must have been installed and began operating at some point between January 1, 2022, and December 31 of 2032.
• Your system must have been installed at either your primary or secondary residence.
• You must own the solar PV system, whether you paid upfront or are financing the cost.
• The solar system must have been used for the first time. You only get to claim this credit once, for the original installation of your solar PV equipment. So if you move residences, take your panels with you, and install them on your new roof, you wont be able to claim a second credit.

Recent Updates To The Solar Tax Incentive

Thanks to the passage of the Inflation Reduction Act in August of 2022, the tax credit was bumped from 26% to 30%. The credit will remain at 30% until Jan. 1 2033 when it will drop down to 26%. In 2034, it will drop to 22% before phasing out in 2035.

Heres an overview of what is currently planned for the future of the tax credit:

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What Is The Federal Solar Tax Credit

The federal residential solar energy credit is a tax creditthat can be claimed on federal income taxes for a percentage of the cost of a solar PV system paid for by the taxpayer.

The installation of the system must be complete during the tax year.

Solar PV systems installed in 2020 and 2021 are eligible for a 26% tax credit. In August 2022, Congress passed an extension of the ITC, raising it to 30% for the installation of which was between 2022-2032. It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. The tax credit expires starting in 2035 unless Congress renews it.

There is no maximum amount that can be claimed.

Federal Solar Tax Credit Step Down Schedule

Since its creation in 2005, the solar tax credit has gone through several updates and wore several nametags. So, for the sake of simplicity, well just refer to it as the federal solar tax credit.

The last time it was at 30% was 2019. Then it stepped down to 26% for 2020-2022. It was scheduled to step down to 22% in 2023 before expiring for residential solar customers in 2024.

But in swooped the Inflation Reduction Act to bring the incentive back to 30% for another ten years.

Heres the new and improved federal solar tax credit step down schedule:

As you can see, the new schedule has the credit at 30% until it steps down to 26% in 2033 and 22% in 2034. And the 30% credit applies retroactively to solar and battery projects installed in 2022.

So if you installed solar in 2022 while the tax credit was at 26%, you will be able to claim an additional 4% of the project costs on your taxes.

This article is for informational purposes only and does not constitute tax advice. Please consult a licensed tax professional with questions about claiming the Residential Clean Energy Credit.

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What Does The 2021 Tax Credit Cover

The 2021 solar tax credit provides a 26% credit for systems installed in 2020 through 2022, and 22% for systems installed in 2023. Systems installed prior to Dec. 31, 2019, were eligible for a 30% credit.

When filing your next tax return, homeowners will be able to include the following expenses:

• Solar PV panels or PV cells used to power an attic fan
• Labor costs for preparation, assembly, and/or installation
• Permitting fees, inspection costs, and developer fees
• Equipment such as wiring, inverters, and mounting hardware
• Energy storage devices that are charged exclusively by the associated panels
• Sales taxes on eligible expenses

While some local or state solar tax credits might place limits on the amount that can be claimed, three is no such maximum for the 2021 solar tax credit.

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Filing Requirements For The Solar Tax Credit

To claim the credit, you must file IRS Form 5695 as part of your tax return. You’ll calculate the credit on Part I of the form, and then enter the result on your 1040.

• If in 2021 you end up with a bigger credit than you have income tax due a $3,000 credit on a $2,500 tax bill, for instanceyou can’t use the credit to get money back from the IRS. Instead, you can carry the credit over to the following tax year.
• If you failed to claim the credit in a previous year, you can file an amended return to claim the credit.

Currently, the residential solar tax credit is set to expire at the end of 2023. If you’re thinking about adding solar energy to your home, now might be the right time to act.

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How Does The Solar Tax Credit Work And How Much Will I Save

Right now, the Solar Investment Tax Credit is worth 30% of your total system cost. This includes the value of parts and contractor fees for the installation.

As mentioned before, if it costs $10,000 to buy and install your system, you would be owed a $3,000 credit.

You are only allowed to claim the credit if you own your system. This is why were strongly opposed to solar leasing if you can avoid it. If another company leases you the system, they still own the equipment, so they get to claim the incentives.

Youll still get the benefits of cheap, renewable energy if you lease. But missing out on the tax credit is a huge blow to getting a positive ROI from your system.

It makes more sense to take advantage of solar financing instead. Youre still on the hook for a loan, but you retain rights to the incentives that help make solar such a sound investment.

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Solar Energy System Eligibility

To be eligible for the Federal Solar Tax Credit, you must install a solar energy system that provides electricity for a residence, such as solar water heaters or a solar photovoltaic system. Since solar water heaters use the suns thermal energy to heat water and solar photovoltaic systems convert the suns light energy into electricity, both systems will qualify for the Federal Solar Tax Credit.

How To Calculate The Solar Tax Credit

The formula for calculating the value of your solar tax credit is straightforward.

Tax credit value = projects total cost multiplied by 0.30

As a result, your tax credit will be worth $9,000 if your project costs $30,000 .

The total cost of the system may include adjustments to electrical boxes that are required to make the solar installation easier.

A dollar-for-dollar income tax decrease is provided by the credit. In other words, the credit lowers the amount of taxes you owe. Additionally, it implies that in order to qualify for the credit, taxes must be paid and filed during the same tax year.

Lets discuss how to apply for your solar tax credit now that we understand how to compute it.

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Considerations For The Solar Tax Credit

2019 was the last year for the 30% Federal solar investment tax credit for projects. The Federal ITC is reserved to improve energy efficiency and lower the carbon footprint of residential and commercial buildings. In 2020, the tax credit gets reduced to 26%, and this credit gets smaller with each passing year. In 2021, the tax credit has been reduced to 22%.

You have to keep in mind that the federal solar tax credit is nonrefundable and is only possible for the system owner. Homeowners who purchased a solar energy system with a Solar Lease or Power Purchase Agreement are not eligible for the Solar Federal ITC.

We recommend that you contact and consult your personal tax advisor for eligibility and any questions about your tax situation.

Are you looking to install solar for your home?

With the expiring solar tax credit, dont wait too long to get a quote on solar. Always seek a professionals help when considering solar for your home. A professional CPA will have the best knowledge on how to handle your home energy situation in an efficient manner. If you are in need of home solar in California? Call Forme Solar at 694-2262 and request a solar quote today!

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What Is The Residential Clean Energy Credit

The Residential Clean Energy Credit is a solar tax credit thats like a coupon for 30% off your home solar installation, backed and funded by the federal government. In the year that you install solar, the Residential Clean Energy Credit can greatly reduce or even eliminate the taxes that you would have otherwise owed to the federal government.

The Residential Clean Energy Credit is the current name of the solar tax credit that was originally known as The Investment Tax Credit and created by the Energy Policy Act of 2005.

Thanks to the ITC, the growth of the solar industry helped create hundreds of thousands of jobs, injected billions of dollars into the US economy, and was a significant step towards cutting down on greenhouse gases, so it was very popular. According to the Solar Energy Industries Association , The ITC has helped the U.S. solar industry grow by more than 10,000% percent since it was implemented in 2006.

With the signing of The Inflation Reduction Act Of 2022, the ITC was renamed the Residential Clean Energy Credit, the value was increased to 30%, and the deadline was extended through December 31 of 2034.

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Federal Solar Tax Credit Filing Step

The following is a fictional scenario to be used for example purposes only. Consult a licensed tax professional with questions.

Lets go through the basics of claiming a federal solar tax credit using a fictional $30,000 expenditure on solar only.

Since the 2022 forms havent come out yet, well use the latest IRS forms available. Please understand that these are subject to change.

Step 1: File your taxes as normal

Begin by filing your taxes as you normally would. Tally your income, claim dependents, deduct your charitable donations all that fun stuff.

Your solar tax credit comes into play on Line 5 of Schedule 3 . This form is for claiming additional credits and payments, including residential energy credits.

Heres what the 2021 form looked like. The 2022 form will likely change.

When you hit this point, its time to switch to Form 5695 to calculate your residential energy credit amount.

Step 2: Fill out Form 5695

Weve modified a 2021 Form 5695 below to show an example scenario for a $30,000 solar purchase and the 30% tax credit now available in 2022.

Again, the 2022 forms may look different.

If you only installed solar in 2022, then this form will be relatively simple.

Input the gross cost of your solar installation in Line 1, then multiply it by 0.30 in Line 6b to find your credit amount. In this scenario, its $9,000.

If Line 14 is greater than Line 13, you can use your entire tax credit in one year. Hooray!

Fill in Line 15 with the smaller of Line 13 or Line 14.

Applying Online Through Cactas

To request a Solar Energy System Tax Credit, you are required to complete an application. The application must be received by May 1 following the year of the installation of the solar energy system or the application will be denied. However, for residential solar energy systems installed during the 2021 calendar year, the application must be received by June 30, 2022. Once your application is reviewed, it will either be denied, approved, or updated to waitlisted status . An application in waitlisted status shall not constitute a promise binding the state the credit is contingent upon availability of tax credits for that particular year.

The application for the tax credit is available online within the Tax Credit Award, Claim & Transfer Administration System . The system is designed so that once you have submitted an application, you can later sign into the system to track its status. The electronic process will create efficiencies in the review and approval of the hundreds of applications received for the Solar Energy System Tax Credit each year. All applications must be entered into CACTAS paper applications are no longer available.

To learn about the amount of tax credits awarded under the program cap, select the Solar Energy System Tax Credit drop down option from the home page. you do not need to sign into CACTAS.

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Eligible Installations And Tax Credit Rates

Residential Installations

Individuals cannot apply for the Iowa credit for residential installations until the installation of the solar energy system is complete.

Qualifying installations must meet the criteria for the federal residential energy efficient property credit related to solar energy provided in sections 25D or 25D of the Internal Revenue Code. The credit amount for a residential installation that occurs after January 1, 2016, is equal to an applicable Iowa credit rate up to $5,000. Residential installations placed in service after December 31, 2021, are not eligible for the Iowa credit.

Business Installations

Businesses cannot apply for the Iowa credit until the installation of the solar system is complete and the system is placed in service. Qualifying installations must meet the criteria for the federal energy efficient property credit related to solar energy provided in sections 48 or 48 of the Internal Revenue Code. The credit amount for a business Installation that occurs after January 1, 2016, is equal to an applicable Iowa credit rate up to $20,000. Installations that begin construction after December 31, 2021, are not eligible for the Iowa credit.

For additional information about the Iowa solar energy system tax credit, please consult Iowa administrative rule 701-42.48.