How to Claim the Solar Tax Credit

*DISCLAIMER: While this blog post discusses solar tax credits, you should ALWAYS consult your tax professional for your specific situation. We do not assume responsibility for your tax situation or credits.

The federal solar tax credit is worth 30% of your solar installation costs in 2023 thanks to a recent increase implemented by the Inflation Reduction Act. The solar tax credit is one of the best ways to save on solar, and you don’t want to miss out. 

Claiming your solar panel tax credit is a fairly straightforward process, but with multiple forms to fill out and calculations to be done, it can get a little confusing. To help simplify things, Boston Solar has put together a step-by-step guide to claiming the federal solar Investment Tax Credit (ITC) for homeowners. 

While we are here to help you, we always recommend you speak to your tax advisor to review and confirm how solar energy tax credits apply to your personal tax situation. 

Step-by-Step Guide to Claiming the Federal Solar Tax Credit in 2023 

Step One: Make Sure You’re Eligible 

Before you can claim your federal tax credit for solar, you need to make sure you’re eligible to receive it. It’s best to determine eligibility at the start of your residential solar installation project, as you’ll need to save all related receipts in order to claim your credit. 

For homeowners, determining eligibility is easy. You likely qualify for the federal tax credit for residential solar energy if you meet the following criteria: 

• You have taxable income 
• You own your solar panel system (no leases or PPA)
• You own the property your solar system is installed on 
• Your system is located at and generating electricity for your primary or secondary residence, located in the United States 

If your solar panels are installed at a property you rent out, things get a little more complicated. If you live at the residence for some portion of the year, you can still claim the credit, but it will be reduced. In these situations, it’s best to speak to your tax advisor. 

The solar tax credit was recently extended by the Inflation Reduction Act of 2022 and will be available at its 30% value until 2032. But to claim the credit in a given year, you need to complete your installation by the end of that year. So, if you want to claim the solar tax credit on your 2023 tax return, you must complete your installation by December 31, 2023. 

Step Two: Complete IRS Form 5695 Residential Energy Credits

Once you know that your system qualifies for the solar tax credit, you can move forward with claiming your credit. To start, you’ll need to fill out IRS Form 5695—Residential Energy Credits. 

To complete Form 5695, you’ll need to calculate the total cost of your solar panel system, including solar batteries. This includes all labor, material, and installation costs associated with your solar energy project. If you received any cash rebates for your solar panel installation, subtract them from the total cost of your solar installation. 

Once you’ve calculated the total cost of your solar panel project, write that number on the first line of your solar tax credit form (Form 5695). Provided that you are not claiming any other energy credits, you can then skip down to line 6a, where you’ll write that same number again. Then, multiply by 30% and write the result on line 6b. 

In the example below, we’ve filled out lines 1 through 6b on Form 5695 using a total solar installation cost of $30,000 as an example. 

The rest of Form 5695 deals with fuel cells and tax credits that are being carried over from a previous year. If neither of those situations applies to you, you can skip down to line number 13 and write in the same number that you wrote in for line number 6b—$9,000 in our example. 

Step Three: Add Renewable Energy Credit to Form 1040/Schedule 3  

Now that you know how much your solar federal tax credit is worth, you’ll need to add that information to Form 1040/Schedule 3. On line 5 of Schedule 3, write in the same number that you wrote for line 6b of Form 5695—in our example, $9,000. 

And that’s it, you’re done! Just remember to attach Form 5695 when you file your taxes. 

In our example, you would receive a dollar-for-dollar tax credit for $9,000, which means you would be able to reduce your federal tax liability by that amount. If the credit is worth more than you owe, you can roll over the remainder and apply it to your federal taxes in the following year. 

*DISCLAIMER: While this blog post discusses solar tax credits and filing your returns, you should ALWAYS consult your tax professional for your specific situation. We do not assume responsibility for your tax situation or credits.

Save 30% with the federal solar tax credit in 2023! Call 617-858-1645 or contact us to schedule a free solar consultation!