Summary: The Federal Tax Credit for Solar Electric Systems allows homeowners to claim a tax credit of 30% of the total cost of installing a solar photovoltaic (PV) system.
As we enter 2024 with an improving economy, lower inflation, and falling interest rates, more Maine homeowners are making the decision to go solar. Solar ownership allows homeowners to fix their electricity costs, benefit from quick payback, and gain energy independence.
With the cost of solar panels continuing to drop, the availability of a 30% federal tax credit, and great financing options, Maine homeowners who install solar panels are in a great position to save on their monthly electric bills.
Here are answers to some commonly asked questions about the Federal Solar Tax Credit.
How Does The Solar Tax Credit Work?
You can pay the full cost of your solar electric system or finance it. 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 PV 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 amount of 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 the full cost of the system.
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 and your tax bill would be reduced to $1,000.
A tax deduction decreases your taxable income. It is an amount that you can deduct from your taxable income to lower the amount of taxes that 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, battery based energy storage systems are also eligible for the tax credit.
Both grid-tied and off-grid solar electric systems are eligible for this credit. This means 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 sales tax paid for system components. The cost of installation labor, as well as all the back-office cost 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 also qualify. In some cases, panel upgrades and service upgrades can apply, as well.
A particularly exciting development is the eligibility of batteries, 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 had not been 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.
See If A Solar Electric System From Maine Solar Solutions Makes Sense For Your Home.
Find out how much you could save today! Contact Maine Solar Solutions’ in-house team of solar experts to schedule your free site assessment by filling out the form below or calling (207) 871-7191.
Disclaimer: This guide provides an overview of the federal investment tax credit (ITC) for residential solar electric systems. It does not constitute professional tax advice or other professional financial guidance. Maine Solar Solutions provides this information for educational purposes and does not offer tax or financial advice. We recommend consulting a tax professional for specific guidance. It’s important to note that this information is based on the current guidelines and may change, so it’s always a good idea to consult with a tax professional or refer to the IRS website for the most up-to-date information.
