Solar panels are a great investment in the long term but can entail some upfront costs. Thankfully today significant federal tax credits and other financial incentives can lower the costs associated with a solar installation and make going solar even more financially lucrative. The main incentive is the federal solar tax credit, which was recently extended through at least 2032 and covers all homeowners. Learn more about what you need to qualify for and claim this solar tax credit below.
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What is the Federal Solar Tax Credit
The federal residential clean energy credit, often known as the “solar tax credit,” is a tax credit that can be claimed on your federal income taxes and which is equal to 30% of the total cost of installing solar. Eligible costs include labor, materials, sales tax, permitting fees, and necessary electrical upgrades — everything related to the cost of going solar. Battery backup systems and electric car (EV) chargers are also now eligible for a 30% tax credit whether part of a solar installation or done alone.
The federal solar tax credit is sometimes referred to as an Investment Tax Credit, or ITC, though it is technically different (but functionally the same) from the ITC offered to businesses that own solar systems. If your tax credit for installing solar is larger than the total tax you owe for the year, you get to offset your total taxes for the year and carry forward what is left for future years. There is no upper limit or maximum solar tax credit you can receive, and if you add to your system later or put solar on a new building you can get another tax credit — there is no limit on the number of solar tax credits a taxpayer can receive.
Average Savings From the Solar Tax Credit
A tax credit is different than and more favorable than, a tax deduction. While deductions just lower your taxable income, a tax credit is an amount of money that you can subtract, dollar for dollar, from the income taxes you owe. The exact value of the 30% federal solar tax credit to a homeowner will depend on the total cost of going solar for you. This depends on factors like how many solar panels we install, the location, and the difficulty of the solar installation.
Our average, solar panel installation in Missouri or Kansas costs about $25,000 before any incentives. For this average solar project, the savings from the solar tax credit ends up being $7500 — a significant savings. If you finance your solar panels through one of our solar financing programs, you can go solar with no money down. In this case you are also still entitled to that $7500 solar tax credit.
Claiming the Federal Solar Tax Credit
You can claim the solar tax credit on your taxes for the year that your project becomes operational. When you do your taxes you just complete and attach IRS Form 5695 to your federal tax return. It's an easy form and if you need a hand Cromwell Solar can help you gather the numbers you will need.
Other financial incentives may be available for going solar including a small $0.25/Watt utility rebate for some Missouri customers. At Cromwell we have decades of experience understanding and maximizing the incentives our customers receive and will work to ensure that your project receives all the solar incentives it is entitled to.
Learn more about home solar panel costs, benefits, payback period, and tax credits.
Please note that at Cromwell Solar we are experts in solar and understand the incentives available, but you should always get tax advice from a tax professional.