The Solar Investment Tax Credit: Top Questions Answered - Maine Solar




In 2022 Congress passed the new climate and inflation reduction bill, a massive benefit to Maine home and business owners considering installing a solar electric system and/or battery backup. There’s a lot of information about the federal solar tax credit, so to help, we gathered answers to some commonly asked questions about the federal tax credit below.

What Is The Federal Solar Tax Credit?

The Federal Solar Tax Credit—commonly referred to as the Solar Tax Credit—is offered by the federal government to people who purchase solar power systems for their homes or businesses. The tax credit allows you to deduct 30% of the cost of installing solar electric and backup systems from your federal taxes, and there is no cap on its value. 

What Is A Tax Credit?

A tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe. A tax credit is a dollar-for-dollar credit applied against a tax liability. For example, if you have a $4,000 federal tax liability and your solar tax credit totals $3,000, you could reduce your federal tax bill to $1,000.

Is The Tax Credit The Same As A Tax Deduction?

It’s important to note this is a tax credit, not a deduction. When you receive a tax credit, it can be applied against the federal taxes that you owe. A tax deduction reduces your taxable income and thus can lower the amount of taxes you owe.  In other words, a tax deduction lowers your taxable income.

Can Anyone Use The Federal Solar Tax Credit?

It is also important to understand that the tax credit can only be used to offset income taxes owed to the federal government. Therefore, if you don’t have a federal tax liability, you won’t be able to use the tax credit.

If The Tax Credit Is Greater Than My Federal Taxes, Will I Get A Tax Refund?

This is a non-refundable tax credit, which means you will not get a tax refund for the tax credit amount that exceeds your tax liability. Homeowners may get a tax refund at the end of the year due to the tax credit if the reduction in tax liability means there was an overpayment during the year. For example, this can often occur when employers deduct employee taxes over the year. However, the taxpayer’s total tax liability still limits such a refund. 

However, your tax credit can be carried forward.  Note that this tax credit carryover can only happen during the period the IRS solar tax credit is in effect, so under the current rules, you would need to use the full credit by the time the credit expires.

How Long Will The Federal Solar Tax Credit Be Available?

The solar federal tax credit was set to expire in 2024, but the newly enacted Inflation Reduction Act returned the Federal Solar Tax credit to 30% until 2032. Systems installed during 2022 will qualify for this higher 30% solar tax credit. This tax credit applies to solar electric systems, solar plus battery back-up, and, for the first time, it also applies to stand-alone battery systems! The tax credit then steps down according to the following schedule:

  • 26% for solar projects completed in 2033
  • 22% for solar projects completed in 2034
  • After 2034, the residential tax credit drops to zero while the commercial credit drops to 10%

What Qualifies For The Federal Solar Tax?

Grid-tied and off-grid solar electric and battery-based energy storage systems.

  • Solar electric panels.
  • Labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection, and developer fees.
  • Balance-of-system equipment, including wiring, inverters, and mounting equipment
  • Batteries (energy storage devices) that are charged by the associated solar PV panels, even if the storage is placed in service in a subsequent tax year to when the solar energy system is installed. It also now applies to stand-alone battery backup systems not charged by a renewable energy source.
  • Sales taxes on eligible expenses.

Do Batteries Qualify For The Tax Credit?

Yes. Battery systems, like the Tesla Powerwall, are eligible for the solar tax credit.

How Do I Qualify For The 30% Federal Solar Tax Credit?

  • The solar electric system must be installed on or before December 31, 2032.
  • The solar electric system is located on your property. The home does not need to be your main home.  It can be your primary or a secondary residence.
  • You must own the solar electric system (i.e., purchase it directly or through financing.  Leased systems or solar power subscriptions do not qualify).

How Can 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 on filling out the form are available here.

Is There A State Solar Tax Credit?

Maine does not offer a state income tax credit for solar electric systems.

Going Solar in 2023

Now is the time to act if you are considering installing solar in 2023! An increasing number of Maine homeowners are fixing their cost of electricity and seeing a great return on investment by investing in solar electric systems. And with more Maine homeowners converting their homes from fossil fuels to efficient electric heatpumps and heatpump hot water heaters, investing in a solar electric system has proven to be a great way to eliminate the impact of ever-increasing energy costs. As a result, Maine Solar Solutions has seen the demand for solar steadily increase these past few years, and we expect next year to have even higher demand as utility prices continue to climb. 

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.

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