Solar Panel Tax Credit in 2024: Everything You Need to Know

Are you considering making the switch to solar energy but are concerned about the upfront costs? You're not alone. Fortunately, the federal solar panel tax credit can significantly reduce the financial burden of installing a solar energy system, making solar power more accessible and appealing than ever.

But what is the tax credit for solar panels exactly? Are you eligible and how can you claim it? Read on as we answer all these questions and more to help you maximize your solar savings!

What Is the Solar Panel Tax Credit?

The solar panel tax credit, also known as the Investment Tax Credit (ITC), is a federal incentive designed to make it more affordable for you to install solar panels on your home. Basically, it allows you to deduct a percentage of the cost of installing a solar energy system from your federal taxes.

In 2024, the current solar panel tax credit stands at 30%, which means you could save thousands of dollars on your solar installation just by taking advantage of this tax credit.

Total Solar Installation Costs X 30% = Solar Tax Credit Value

To put it in perspective, the cost of installing a solar system in the U.S. typically ranges between $15,000 and $30,000. For example, if you spend $18,000 to install a typical 6 kW solar system, the 30% tax credit would allow you to deduct $5,400 from your federal taxes, bringing your total cost down to $12,600.

$18,000 X 30% = $5,400

So, what costs does this federal solar tax credit cover? Well, it's not just the solar panels themselves—it applies a broad range of expenses tied to installing your solar energy system:

• Solar Panels:The core of your system, these are what capture sunlight and convert it into electricity. They come in different power output capacities, typically ranging from 250W to 450W. For example, the Anker 405W Rigid Solar Panel offers a high 405W output with an impressive 23% efficiency, meaning it can capture more energy from the sun.
• Inverters:Inverters are essential for your solar system. They convert the direct current (DC) electricity generated by the solar panels into alternating current (AC), which is what most home appliances use.
• Other Solar Equipment:Mounting systems to attach the panels to your roof, wiring, and all other components required to set up the system also qualify.
• Labor Costs:While portable options like the Anker SOLIX PS100 Portable Solar Panel (100W) don't require much setup, home solar systems need professional installation that involves preparing the site, mounting the panels, and connecting everything to your electrical grid. These labor costs are covered as well.
• Permitting Fees and Inspection Costs:Any necessary local permits and inspections to get your solar system up and running are also covered.
• Solar Batteries (if installed):If you choose to add solar battery storage, the costs of those rated 3 kWh or more are eligible for the credit as well, allowing you to store excess energy for later use.

What Changes Are Coming for the Solar Tax Credit in 2024?

The solar panel tax credit 2024 remains at 30%, just as it has been since the passage of the Inflation Reduction Act of 2022. This is good news for homeowners looking to invest in solar energy, as this significant financial incentive will continue unchanged until 2032.

After that, the credit will begin to decrease, dropping to 26% in 2033 and 22% in 2034, before expiring entirely in 2035 unless renewed by future legislation.

So, if you're thinking about going solar, 2024 is a great time to take advantage of the full 30% credit. Not only does this apply to the solar panels themselves, but it also covers equipment like inverters, batteries, and even labor costs related to installation.

Who Is Eligible for the Solar Panel Tax Credit?

To qualify for the federal solar panel tax credit in 2024, there are a few key requirements you need to meet:

• Ownership:You must own the solar energy system. If you are leasing the system or have a power purchase agreement (PPA), you will not be eligible for the tax credit. However, if you finance the system, you can still claim the credit as long as you are responsible for paying off the system.
• Location:The solar system must be installed at a residence in the U.S. that you own and live in, either as your primary or secondary home. This includes houses, condos, mobile homes, and even some off-site community solar projects, provided they generate electricity credited to your home and don't exceed your usage.
• New Installation:The tax credit can only be claimed for the original installation of a solar panel system. If you move the panels to another property later, the tax credit doesn't apply to the re-installation.
• Tax Liability:Since the credit reduces your federal tax liability, you must have enough tax liability to benefit. The credit is nonrefundable, meaning it can lower your taxes owed, but it won't result in a refund. However, if your tax credit exceeds what you owe, you can carry over the unused portion to future tax years.

There are no income limits for this tax credit, making it accessible to anyone with tax liability and an eligible solar installation. If you meet these basic requirements, you're set to take advantage of the solar panel tax credit in 2024!

How Can You Claim the Solar Panel Tax Credit?

Once you've confirmed your eligibility, you might be wondering exactly how to claim the solar panel tax credit. The process is fairly straightforward, but it does require proper documentation and timing. Here's a step-by-step guide:

1. Complete Your Solar Installation:Make sure your solar energy system is fully installed and operational by the end of the tax year (December 31, 2024, for claiming on your 2024 return).
2. Save All Documentation:Keep detailed records of all costs related to your solar installation, including equipment (like panels and inverters), labor, permits, and inspections. These expenses will form the basis for calculating your tax credit.
3. Fill Out IRS Form 5695:This is the critical form you'll need to claim the credit. You'll enter your total installation costs in Part I of the form to calculate your credit. For example, if your system cost $20,000, you would claim a 30% credit, or $6,000.
4. Include Form 5695 with Your Tax Return:After filling out Form 5695, attach it to your annual tax return (Form 1040). The credit will be applied to reduce the amount of tax you owe. If your tax credit exceeds what you owe, the unused portion can be rolled over to future years.

Does the Federal Tax Credit Work with Other Local or Utility Solar Incentives and Rebates?

Yes, the federal solar tax credit can be combined with other local, state, and utility incentives, which can significantly reduce the overall cost of going solar. However, the way these incentives interact with each other can affect how the federal tax credit is calculated.

Utility Rebates

If you receive a rebate from your utility company for installing solar panels, that rebate is typically subtracted from your total installation cost before calculating the federal tax credit. For example, if your solar system costs $20,000 and you receive a $1,000 utility rebate, your 30% federal tax credit would be based on the remaining $19,000, not the full $20,000.

State Tax Credits

Some states offer their own solar tax credits, which can be claimed in addition to the federal tax credit. However, these state credits usually don't reduce the federal credit. For example, if your state gives you a tax credit for a portion of your solar installation, you can still claim the full 30% federal credit on your total costs before applying any state credits.

Net Metering and Other Incentives

Many states and local utilities offer programs like net metering, which allows you to sell excess energy generated by your solar system back to the grid. These incentives typically don't affect the federal tax credit but offer additional savings by reducing your monthly energy bills.

Conclusion

Investing in solar energy is a forward-thinking decision that benefits both your wallet and the planet. Understanding and utilizing the federal solar panel tax credit can make this investment even more rewarding by substantially lowering your costs. As we've discussed, the solar tax credit will remain at 30% before it drops in 2033, so it's essential to act sooner rather than later. By knowing your eligibility and how to claim the credit—while also taking advantage of local incentives—you can maximize your savings. Now is the perfect time to harness the power of the sun and take a definitive step toward a greener future.

FAQs

What is the 2024 federal solar tax credit?

The 2024 federal solar tax credit, also known as the Investment Tax Credit (ITC), allows homeowners and businesses to deduct 30% of the cost of installing solar energy systems from their federal taxes. It helps reduce the overall cost of going solar by lowering your tax liability.

When do I claim the solar tax credit?

You can claim the solar tax credit in the year your solar system is installed and becomes operational. When you file your federal taxes, include the credit on your tax return for that year. For example, if your system is installed in 2024, you claim the credit when filing your 2024 tax return in early 2025.

Why am I not getting my solar tax credit?

You might not be receiving your solar tax credit if your tax liability is too low since the credit is non-refundable and can only reduce your taxes to zero, with any unused amount rolling over to future years. Additionally, you must own the solar system to qualify. If your system is leased or installed through a power purchase agreement (PPA), you won't be eligible. Filing errors, such as incorrect forms, can also prevent you from receiving the credit.

What is the income limit for the federal solar tax credit?

There are no income limits for claiming the federal solar tax credit, making it accessible to all homeowners regardless of income level.