Another tax season is looming and we’ve been fielding inquiries regarding the mechanics of the federal clean energy tax credit. If you’ve recently installed solar panels or battery storage, your investment likely qualifies for the 30% federal clean energy tax credit made available under the Inflation Reduction Act.
Tax credits are estimated amounts. Therefore, it’s advisable to consult with your personal tax or financial advisor for precise figures and tax advice.
For comprehensive information, the IRS offers detailed guidance on all aspects of the Residential Clean Energy Credit.
The Residential Clean Energy Tax Credit
- This credit is a dollar-for-dollar tax credit applicable to your federal income taxes.
- The tax credit might be more than most people pay in taxes in a given year, however, the credit can be carried into future years for anyone that wouldn’t use it all in one year.
- Unlike a tax deduction that reduces taxable income, this credit directly decreases the amount of taxes owed.
- Specifically, it amounts to 30% of solar installation costs.
- For instance, an average $20,000 solar system would qualify for a tax credit of $6,000.
Eligibility
To qualify for the federal clean energy tax credit:
- You must be the owner of the solar panels
- Possess taxable income
- And have them installed at either your primary or secondary residence.
Eligible equipment for the federal tax credit includes:
- Photovoltaic solar installations
- Battery storage
- Solar water heaters
- Geothermal pumps
- Fuel cells
- Wind turbines.
How to Claim the Credit
To the process of claiming the credit, file Form 5695, Residential Energy Credits, along with your tax return. Claim the credit for the tax year in which the property is installed, not when it’s purchased.
Just as we advise consulting your tax advisor, our Energy Specialists are here to equip you with the necessary information, ensuring a seamless and stress-free tax season. We understand the value of hassle-free processes, and our team is dedicated to making that a reality for you.