Updated January 2023
Homeowners and business owners who install solar are eligible for the federal solar tax credit, which can mean large savings and financial advantages when transitioning to clean solar power! The federal solar tax credit, recently expanded into the Residential Clean Energy Credit, allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes. The 30% tax credit will be available until the end of 2032.
The key takeaways are:
We cover the federal tax credits in greater depth below, for residential, commercial, and non-taxpayer entities. Our solar experts at ReVision Energy are happy to discuss these details with you as your embark on your solar journey!
Disclaimer: ReVision Energy provides this for educational use only, we are not tax professionals and are not offering tax advice. We recommend all solar customers consult with a tax counsel.
The federal solar tax credit, allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes. This will be available until the end of 2032, at which point it will drop to 26%.The credit can also be carried forward to future tax years if you cannot take the full credit in the year the system was installed.
With the passing of the Inflation Reduction Act Bill in August 2022, the Solar Tax Credit (renamed to the Residential Clean Energy Tax Credit) received a 10-year extension of 30%.
The 30% tax credit covers installation of solar complimentary technology, including battery storage and EV charging infrastructure, up to certain amounts. Starting in 2023, home energy upgrades, such as heat pumps and hot water heaters, also qualify for a tax credit.
Learn more about the incentives for energy efficiency home products on our overview of the Residential Clean Energy Credit.
Businesses, and non-taxpaying entities like nonprofits and municipalities, can benefit from a 30% tax credit on renewable energy systems, called the energy investment tax credit. As with the residential tax credit, it was extended with the passing of the Inflation Reduction Act Bill and will step down to 26% at the end of 2032.
Starting in 2023, businesses can utilize potential stackable “bonus” ITC adders that can increase the total ITC value of 40%, 50% or more. "Bonus" credits can apply to projects that meet domestic manufacturing requirements, projects on defined "energy communities" or in Low-Income areas, and projects part of HUD-approved affordable housing programs.
Non-taxpaying entities like municipalities and nonprofits may now access the ITC via a new “direct pay” provision by receiving a 100% government rebate for the ITC value in 2023 and from 2024 onwards if they meet certain requirements.
More resources: DSIRE – Business Energy Investment Tax Credit (ITC)
When you utilize the 30% credit on your solar project, the ITC amount is applied against your tax liability, or the money you owe the IRS. As long as you own your solar power system, you are eligible for the solar investment tax credit. However, if you sign a lease or power purchase agreement (PPA) with a solar installer, you are not the owner of the system, and therefore cannot claim the tax credit. It’s important to note that there is no income limit on the federal solar tax credit program, so taxpayers in all income brackets may be eligible.
You claim the investment tax credit for solar when you file your yearly federal tax return.
For homeowners who utilize the 30% ITC, you can cover the following:
In general, you should be able to combine savings from the ITC with other incentives. Depending on which state you live in, there are several other solar incentives available, like rebates, state-sponsored programs, and other tax credits. Check out our state specific solar guides to learn about incentives in your state:
To achieve the rigorous and necessary renewable energy benchmarks needed to slow the climate crisis, the US has heightened the federal policies and incentives to help deploy clean energy technology. While access to solar remains an obstacle for certain disadvantaged communities, solar deployment has increased rapidly across the country, on both a residential and utility-scale level.
The federal tax credit has given businesses, homeowners, and tax payers the opportunity to take advantage of decreased solar costs while increasing long-term energy stability. This allows companies like ReVision Energy to utilize resources and funding to growing solar access equitably across our communities.