If you’ve been looking into solar panel photovoltaic systems, you probably can see how expensive they can get. Some good news is that now through the Inflation Reduction Act, the solar federal tax credit is among the best ever.
Known as the Residential Clean Energy Credit, the new tax credit is worth 30% of the gross cost of your solar install with no cap on the amount. This includes labor, equipment, batteries, and other costs related to the solar install.
I looked around online was didn’t really find a solar federal tax calculator that encompasses the data we need to make decisions on potentially tens of thousands of dollars, so I made one.
Check out the video I made on how to use the calculator, along with many tax situation examples as well –
Another motivation was to offer a calculator without secretly acting as a lead service or selling your information to other solar companies. So much of solar info online is just to collect leads…
There are some cool (I think anyway) parts to this that I really wanted to build in:
- The calculator includes other state and utility rebate and tax credit calculations, if applicable.
- It includes a five-year graph and chart in case your solar tax credit amount exceeds your yearly taxable income. This assumes a carryforward into future years, and show you the exact timeline for the credits.
- Using your own entered data for solar system cost estimates, we provide a graph that shows you both lesser and more expensive systems, the tax credits with those, and the net cost of each!
So with that, here’s the calculator. Change the default amounts to match the proposals or system that you’re looking to buy.
There are also some common questions and more information below the calculator.
What is the Residential Solar Tax Credit?
In a nutshell – it’s a Federal income tax credit worth 30% of the system cost. Taken directly from the IRS.gov website:
The Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for your home installed anytime from 2022 through 2032. The credit percentage rate phases down to 26 percent for property placed in service in 2033 and 22 percent for property placed in service in 2034. You may be able to take the credit if you made energy saving improvements to your home located in the United States.IRS.gov
It’s a nonrefundable credit, which means:
- You won’t get any kind of immediate rebate/tax credit check. You deduct the amount from your taxes when you file for that calendar. This means that realistically, you won’t get the credit for up to a year or more (if you extend your tax filing).
- You can only take as much as you owe in taxes in that calendar year.
Some Other Common Questions and FAQ About The Solar Tax Credit
Disclaimer: As always, consult your personal tax preparer or CPA for details on any tax credits or topics along these lines. Laws change all the time, and can be interpreted differently. We do our best to gather the best information we have at the time, but we are not professional tax advisors or CPAs.
How does it work?
It’s a dollar-for-dollar tax reduction from the taxes you owe on your Federal taxes. You cannot take more than you owe in that particular year.
Can you use the credit retroactively for 2022 taxes?
The good news is…yes! When the Inflation Reduction Act went into effect, it included 2022.
What IRS form do you use to file this?
It’s Form 5695. You can download it or view it from the link there. You’ll record any Residential Energy Credits on it, and it will then flow through to your 1040.
What if the solar tax credit is more than I owe in taxes for the current year?
You’ll get the credit equal to what you owe in taxes for that year, and any remaining amount can be used as a carryforward and you can apply it to future years.
This is why the calculator above is so useful. Many people won’t pay as much as the credit, so you can see the timeline in which you’ll receive the credit each year.
How to tax refunds affect the solar tax credit?
Tax refunds are not really refunds at all. Getting a refund essentially means you’ve had more taxes withheld (paid into the IRS) than you actually owe in that year. You’re basically getting your overpaid taxes back to you, but it often feels like free money to use mentally.
Whether you will get a refund or not (typically from your W2 employment), the tax credit is still just calculated as 30% of the solar system cost.
Your tax software or tax preparer will calculate how much you’ve paid in throughout the year, and what else you might owe in taxes at the end of the year (if you didn’t pay in enough yet).
- If you owe more tax (paid through the year and final number) to the IRS than the solar tax credit amount, you can take the full solar tax credit in that year.
- If you owe less to the IRS than the solar tax credit amount, you can carryforward that remaining amount into the next year(s).
Is this a Refundable or Nonrefundable tax credit?
It’s a nonrefundable tax credit, meaning you will not get a check back from the IRS for the full amount of solar tax credit amount automatically.
It’s a dollar-for-dollar credit, which reduces your taxes that you owe into the IRS. You can only collect on it as fast as you owe that money into the IRS, even if it takes years.
How many years can you get the credit for, or carryforward the tax credit?
At the time of this writing, it’s understood that you can take a tax credit on a new system every year, meaning you can move into another house and buy a new system every year, as long as the tax credit is law.
Currently, you get a 30% tax credit for tax years 2022 through 2032. It dips a little bit to 26% in 2033, and 22% in 2034, with 0% in 2035.
Can you claim this on a rental property or a home you don’t live in?
The current interpretation is no, you can only take the solar tax credit on a primary residence, or at least a home that you live in personally sometimes throughout the year.
How do utility rebates work with the tax credits?
This is important to know. You must deduct any rebates (from utility companies or elsewhere) to calculate the solar tax credit. We included this field in the calculator above if you want to use it.
Example: The solar panel system costs $30,000. You get a utility rebate locally in your area of $5,000. You subtract the rebate from the gross system cost to get the amount that the federal tax credit is based on:
$30,000 – $5,000 = $25,000.
$25,000 net system cost x 30% tax credit = $75,000 tax credit.
How do state tax credits or rebates work?
It’s hard to say, as each state is different. A good resource for this is the https://www.dsireusa.org/ website, or you can reach out to your local tax advisor.
What equipment does this 30% tax credit work with?
In general, it works with anything directly related to the installation of the solar system itself. This can include:
- Solar panels
- Batteries – grid-tied through net metering and also off-grid/standalone
- Electronics associated
- Design/engineering fees
- Any roofing materials directly related to producing solar energy. This can include things like solar roof shingles or the Tesla solar roof, but not regular roofing materials that do not produce solar energy.
I hope this was a helpful resource for you. We did our best to compile the best information on clearing things up.
Do you have a question or did we miss something? Feel free to comment below.
We also offer our Solar Second Opinion service. We act as your advocate and as a consultant by reviewing your solar proposals you got, or we can design the solar system fo you as well. Unfortunately, there’s so much shady business in this solar space. We’re here to clear out a lot of that noise and save people a ton of money.
We can also help you go full netzero, which includes the (much cheaper than solar) upgrades for your home. For more, check out our Services page.