**Update: Well, none of our crystal balls saw it coming, but happily this blog post, written as we were trying to settle in for the sunset of the federal tax credit, turned out to be totally wrong! Check out the latest news about the federal Investment Tax Credit as it has been raised to 30% through 2032!**
It pains us to say it, but it’s not looking like the federal solar tax credit is going to be extended. That means if you’re interested in solar, right now is the time to make the decision if you want the 26% tax credit. We generally don’t like making statements like this, and we never like to add pressure when making a big decision, but we do want people to know that this 26% credit is just about done.
How Does the 26% Tax Credit Work and Why is it Ending?
The 26% federal solar tax credit can be claimed if your solar system is “operational” by December 31, 2022. The issue is that it takes time to purchase, design, permit, and install a quality solar system. The process can take between 4-6 months and is on the longer side of that if batteries are included.
We can never guarantee an install date because there are so many factors out of our control — supply chain, county permitting procedures, etc. — but we do believe there’s a good chance that customers who get in the queue right away will make it in time to claim their 26%.
What Happens if I Don’t Make It?
The federal solar tax credit steps down to 22% on January 1, 2023. So if your project isn’t operational by then, you will be able to claim the 22% on the subsequent year’s return. In 2024, the tax credit goes away completely.
How Do I Claim My Tax Credit?
It’s important to remember that a tax credit is different from a tax deduction. The tax credit means that you will be able to deduct the full 26% of the total cost of your solar project from your total tax liability, rather than as a deduction from your taxable income.
To claim the credit, you’ll file IRS Form 5695 as part of your tax return. You calculate the credit on the form, and then enter the result on your 1040. When it’s time to file, your Ipsun solar consultant will be happy to help you find the necessary paperwork and answer any questions you have. Of course, it’s important to consult your tax advisor if you have tax-specific questions.
What if My Tax Liability is Less Than the Amount of My Solar Tax Credit?
If you end up with a bigger credit than you have income tax due—a $3,000 credit on a $2,500 tax bill, for instance—you can carry the amount over to next year’s return, but it’s important to note that your carryover will only receive the 22% credit that applies to 2023. After 2023, there will be no ability to carry over since the credit sunsets completely in 2024.
What Else Is Covered By the 26% Federal Tax Credit?
Home battery storage systems and EV Chargers can also be claimed under the 26% federal tax credit. Sometimes new roofing can also be included, but this is a case by case basis and we advise you to talk to a tax expert to ensure this can be included.
Learn More About the Solar Tax Credit
To learn more about the solar tax credit, officially known as the Federal Investment Tax Credit, read our guide to the ITC here: Everything You Need to Know About the Federal Investment Tax Credit
Talk to us!
Get in touch today to learn more about the 26% tax credit and to get your project started!