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Guide to the Federal Solar Tax Credit (2022)

The United States federal government subsidizes the purchase and installation of solar power generating systems with a general federal solar tax credit*. The renewable energy tax credit is available to both residential homeowners and commercial businesses. It also significantly reduces the payback time for solar power investments.

Will there be solar tax credits in 2022?

In August of 2022, the federal government renewed and extended the Solar Investment Tax Credit as part of the Inflation Reduction Act (IRA), raising the rate from 26% to 30% and ensuring that the credit will be in place at that level until the end of 2032.

Even better, the legislation is retroactive to include solar energy systems that have been activated since January 1, 2022.

What is the solar investment tax credit? 

  • The federal solar investment tax credit (ITC) is a tax credit that can be claimed on federal income taxes for 30% of the cost of a solar photovoltaic (PV) system.
  • The system must be placed in service during the tax year it is claimed and generate electricity for a home located in the U.S.
  • Although the increased 30% tax credit was approved in August of 2022, that rate is retroactive to systems placed into service any time that calendar year.
  • The 30% tax credit applies to the total cost of a residential solar energy system, including labor and equipment.
  • The tax credit applies to solar batteries. As of January 1, 2023, that will include standalone backup batteries.
  • There is no maximum amount that can be claimed.
  • If you don’t use all the tax credit the first year, the remaining amount can be rolled over to the following year.

Lifetime of Solar Tax Credit, as of August 2022

Am I eligible to claim the solar investment tax credit in 2022?

You might be eligible for the 30% solar investment tax credit if you meet all of the following criteria:

  •  Your solar PV system was ‘placed in service’ after January 1, 2022.
  • The solar PV system is located at a residential location in the U.S. (but not necessarily your primary residence).
  • You own the solar PV system ( i.e., you purchased it with cash or through solar financing). Solar leasing or solar purchase agreements (PPA) do not qualify for the 30% tax credit.
  • The solar PV system is new or being used for the first time. The ITC can only be claimed on the “original installation” of the solar equipment.
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What is the difference between a tax credit and a tax rebate?

It’s important to understand that this is a tax credit** and not a rebate.

Tax rebates are payable to the taxpayer even if they owe no tax. While many people qualify for the solar panel tax credit, there are some who do not. Anyone who does not owe federal income taxes will not be able to benefit from the solar tax credit in the current year. And, if you’re on a fixed income, retired, or only worked part of the year, you may not owe enough taxes to take full advantage of this solar tax credit.

A tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe. For example, claiming a $1,000 federal tax credit reduces your federal income taxes due by $1,000. Tax credits offset the balance of tax due to the government. You do not get a refund if you have no tax liability for the year your system goes into service. If you paid taxes through withholding or quarterly estimated filings, the ITC can still be applied, and the prepayments you made may be refunded. Keep in mind that the credit can be carried forward to the following year, which means that you can use any remainder from this year as a credit towards next year’s taxes.

Consult a qualified tax professional to understand any tax liability or eligibility for any tax credits that may result from the purchase of your solar system.

2022 Solar Panel Tax Credit FAQ’s

WHAT IF THE SOLAR PANEL TAX CREDIT EXCEEDS MY TAX LIABILITY? WILL I GET A REFUND?

This is a nonrefundable tax credit, meaning you will not get a tax refund for the amount of the solar tax credit that exceeds your tax liability. However, you can carry over any unused amount of the solar tax credit to the next tax year.

CAN I USE THE SOLAR PANEL TAX CREDIT AGAINST THE ALTERNATIVE MINIMUM TAX?

Yes. The tax credit can be used against either the federal income tax or the alternative minimum tax credit.

HOW DO I CLAIM THE SOLAR TAX CREDIT?

File Tax Form 5695 with your tax return.

ADT Solar does not provide tax advice. Be sure to speak with a qualified tax professional if you have questions about your personal situation.

HOW MUCH LONGER IS THE SOLAR TAX CREDIT AVAILABLE?

Great news! The Federal Solar Tax Credit was just extended a decade to 2032. It will drop to 26% in 2033.

The table below details how much longer the tax credit is available for, and for how much.

Year

Available Solar Tax Credit

2022-2032

30% tax credit for residential solar panels.

2033

26% tax credit for residential solar panels.

2034

22% tax credit for residential solar panels.

Have more questions about the federal solar tax credit? Check out our TOP 10 FREQUENTLY ASKED QUESTIONS ABOUT THE FEDERAL SOLAR TAX CREDIT blog for additional information!

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Here at ADT Solar, we provide high-quality solar panels and installation services and do not lease solar panel systems.

Now is the time to take advantage of the solar investment tax credit. Contact our team of dedicated solar experts today to get your customized solar quote!

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Disclaimer: This webpage provides an overview and does not constitute professional tax advice or other professional financial guidance. It should not be used as the only source of information when making purchasing decisions, investment decisions, or tax decisions, or when executing other binding agreements.

*Tax and credits or incentives including those provided by federal, state, or local governments may change or end. This can impact the amount of money you might save. Consult a tax professional to understand any tax liability or eligibility for any tax credits that may result from the purchase of your solar system.

**If you have taxable income and own the system, you may qualify for the federal investment tax credit (ITC). It is your responsibility to determine your eligibility and to apply. Consult a qualified tax professional for assistance and details. 

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