How Do I Claim the Federal Tax Credit for My Solar System?

March 18, 2020

Uncle Sam allows you to claim a credit of 26 percent of the expense of a residential or commercial solar power system installed in 2020 on your 2020 federal taxes.In the 2021 tax year, the claim amount will be reduced to 22 percent, and then—we’re sorry to say—to zero in 2022 for residential solar, and 10 percent for commercial.TaxIncent_FTC

The Paper Trail

If you own your system—that is, if it’s not a lease from your utility—and you also owe taxes, you’re likely to be eligible for the credit. To be sure to get the full benefit, you need to maintain a good paper trail, keeping track of everything you spend, including these allowed costs:

  • The cost of the solar equipment itself
  • Freight shipping costs
  • Solar consulting fees
  • Professional installer fees
  • Electricians’ fees
  • Engineers’ fees
  • Any tools that are bought or rented
  • Wiring, screws, bolts, nails, and other construction needs
  • Non-solar equipment purchased or rented (e.g., scaffolding, man-lift)
  • Permitting fees
  • Permitting service costs
  • Contractors’ fees

As you can see from the list, even if you install the system yourself, you’ll still come out ahead—although you can’t claim your own labor as one of the expenses for the credit.

Filing for Credit

To actually claim your residential  credit, you’ll need to fill out and file Form 5695 with your 1040 Individual Tax Return. For commercial solar, you’ll need to complete Form 3468.

  • Gather all your expense receipts and put them in a safe place.
  • Confirm that you’re eligible for the credit.
  • Complete Form 5695 or 3468, on which you’ll add up your renewable energy credits.
  • Transfer this renewable energy credit information to your Form 1040.

For more on tax credits and other subsidies that can help you pay for solar, see our eBook “Solar Tax Incentives Explained.”




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Solar Tax Incentives Explained, to learn more about the financial assistance offered and why it's important to act as quickly as possible! eBook_CTA_TaxIncentivesExplained

 

 

Categories: Financial