With the cost of solar panels continuing to drop, a 30% federal tax credit available, and great financing options, Maine homeowners who install solar panels are in a great position to save on their monthly electric bills.
There is a lot of information about the federal solar tax credit, so to help, we gathered answers to some commonly asked questions about it below.
How Does The Solar Tax Credit Work?
You can pay or finance the full cost of your solar electric system. Once the system is installed and operational, you can claim the 30% tax credit.
You can apply the tax credit against any federal taxes you may owe.
Can I Earn The Solar Tax Credit If I Finance My Purchase?
Yes, you can claim the federal solar tax credit even if you finance your solar electric system. As long as you are contractually obligated to pay for the full cost of the system and you own the system (i.e., you’re not leasing it or paying a solar company to purchase the electricity generated by the system), you’re eligible to claim the credit.
It’s important to remember that the credit is a dollar-for-dollar reduction in the income tax you would otherwise owe. So, if you financed the system through the seller and are responsible for the full cost, you can claim the credit based on that cost.
What If The Solar Tax Credit Is Greater Than The Amount Of Tax That I Owe?
This is a nonrefundable tax credit, which means you will not get a tax refund for the amount of the tax credit that exceeds your tax liability. However, you can carry over any unused amount of tax credit to the next tax year.
Homeowners may get a tax refund at the end of the year due to the tax credit if the reduction in tax liability means that there was overpayment during the year. This can often occur when employers deduct taxes for employees over the course of the year. However, such refund is still limited by the taxpayer’s total tax liability.
How Do I Claim The Federal Solar Tax Credit?
After seeking professional tax advice and ensuring you are eligible for the credit, you can complete and attach IRS Form 5695 to your federal tax return (Form 1040 or Form 1040NR). Instructions for filling out the form are available here.
What’s The Difference Between A Tax Credit vs. Tax Deduction?
Understanding the difference between a tax credit and a deduction is important. A tax credit directly reduces the amount of tax you owe. For instance, if your solar tax credit is $3,000 and your federal tax liability is $4,000, you would apply that credit to the amount of federal taxes you owe, reducing your tax bill to $1,000.
A tax deduction decreases your taxable income. It is an amount you can deduct from your taxable income to lower the taxes you owe.
What Qualifies For The Solar Tax Credit?
This tax credit applies to more than just solar electric systems. Not only do solar panels qualify for the tax credit, but battery-based energy storage systems are also eligible (even if not connected to solar panels!).
Both grid-tied and off-grid solar electric systems are eligible for this credit. This means that whether your system is connected to the utility grid or a battery-based off-grid system, you can take advantage.
There is no limit to the size or amount of the tax credit, and it qualifies if you buy a second system or add additional equipment, such as more solar panels or a battery, to an existing system that you already own and have already taken a tax credit on.
The entire cost of the solar electric system qualifies for the tax credit, even the sales tax paid for system components. The cost of installation labor and all the back-office costs to get your solar system up and running – from the permitting fees and inspections to utility fees – qualify. Additional electrical equipment necessary to provide for a code-compliant solar installation is also qualified. In some cases, panel and service upgrades can also apply.
A particularly exciting development is the eligibility of batteries, which are mostly used in Maine for emergency backup power. Devices like the Tesla Powerwall, charged by your solar electric system, qualify for the credit. This is true even if you add them in a different tax year from your solar energy system installation. Furthermore, stand-alone battery backup systems, which previously were not eligible, now qualify for the tax credit.
How Long Is The Solar Tax Credit Available?
In August 2022, Congress passed the Inflation Reduction Act. This bill included a 10-year extension of the Federal Solar Tax credit, also known as the ITC. The 30% tax credit is available for system installed through 2033. It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. The tax credit expires starting in 2035 unless Congress renews it.
Is The Cost Of A Roof Replacement Eligible For This Solar Tax Credit?
No.
The federal government’s energy.gov website states that traditional roof materials and structural components that serve only a roofing or structural function do not qualify for the credit.
Can I Claim The Tax Credit If I Install Solar On My Vacation Home?
Yes! Solar PV systems do not necessarily have to be installed on your primary residence for you to claim the tax credit. You can claim the tax credit for systems installed on vacation homes, second home, and or camps.
Are There Any State Or Local Tax Credits Or Rebates For Solar Electric Systems?
Maine does not offer any state or local tax credits for solar electric systems. However, Maine does allow for a property tax exemption for renewable energy equipment. This program exempts renewable energy equipment, such as solar panels, from property tax.
Summary: The 30% Federal Solar Tax credit offers significant savings for Maine homeowners interested in going solar!
A solar electric system is a good investment and benefits the environment, too!
Faced with rising energy costs, many homeowners are installing solar on their homes and fixing their cost of electricity. Solar electric system owners typically see the systems pay for themselves in as little as 7-12 years. With Maine Solar Solutions 3rd party 30-year warranty, homeowners can enjoy secure, long-term savings without any unexpected service or maintenance costs.
Thanks to the Federal Solar Tax Credit and financing options with no money down, solar energy is now more accessible than ever before. As tax season approaches, learn how solar energy can benefit your home or business.
Ready For The Next Step?
Ready to see what solar could look like for your home and how much you could save by owning your power? Reach out for a free customized system design and informative quote. As always, our goal is to get you the information you need to make an informed decision.
DISCLAIMER: This guide provides an overview of the federal investment tax credit for those interested in residential solar photovoltaics, or PV. Government incentives are outside Maine Solar Solutions’ control and for informational purposes only. These incentives are subject to change without notice. Please note that this is not tax advice. Maine Solar Solutions encourages consulting with your tax, financial, or legal advisor for further details and determining your eligibility for these tax incentives.
