The Federal Solar Tax Credit, also known as the investment tax credit (ITC), allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. This tax credit for going solar is available to residential solar and commercial solar. There is no limit on the deduction so the larger the project cost, the larger the tax credit will be.
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Here is what the current future of the Federal Solar Tax Credit (also known as the Investment Tax Credit) looks like:
2018 & 2019 - The tax credit will remain at 30% of the cost of the entire system
2020 - The tax credit will dip to 26% of the total cost of the system. This applies to residential & commercial solar projects.
2021 - New residential & commercial solar owners can deduct 22 percent of the cost of the solar system from their taxes.
2022 and beyond - Deductions for residential solar are no longer available. Owners of new commercial solar energy systems can deduct 10% of the cost of the system from their taxes.
How Does The Solar Tax Credit Work?
You can use the tax credit beginning on the year that your solar project first began construction. If you do not have enough tax liability to claim the entire credit in one year, you can roll the remaining credits over into future years as long as the tax credit is in effect.
Claiming the ITC or Federal Solar Tax Credit
You can claim the tax credit for solar when you file your yearly federal tax return. Let your accountant know that you have installed solar panels in the past year or if you file your own taxes make sure to fill out form 5695 and add it to your normal 1040. Instructions from the IRS on how to fill out form 5695 are here.
Please note that we at Solar Solutions of Missouri are not tax experts. We can help to guide you and help you better understand the tax credit but please make sure to also consult your tax advisor before making a final decision.