Federal Solar Energy Tax Credit | eHow

In order to promote the use of solar power in American homes, the Department of Energy and EPA have come together to offer tax credits for homes that use solar energy. Understanding how to take advantage of the solar panels available to you may seem difficult, but it need not be. This guide will explain how federal solar energy tax credits work.

Why Are Tax Credits Available?

Tax credits are provided for Americans who rely on solar power because it is excellent for the environment. It does not pollute the world around us, and it reduces the reliance on fossil fuels. The hefty price you spend to reduce your carbon footprint means that the government will give you a tax break.

Solar Installation Credits

In 2016, all solar power systems that are approved by Energy Star would allow homeowners to claim 30 percent of the cost as a tax credit. Credits are taken off the amount of tax you would have paid, not from the portion of your income considered taxable. Homeowners are allowed to claim credit for homes they live in, vacation homes, and new constructions.

How to File for Solar Credits

Claiming this credit is not difficult. Simply file the IRS Form 5695 alongside the rest of your tax return. You will be asked to determine the credit you deserve on the form and then fill in the number on the Form 1040. For installations up to 2019, you may receive a 30 percent tax credit. The credit’s percentage will begin to decrease after that point, reaching 22 percent in 2022.

Restrictions on Solar Credits

Here’s the bad news: you cannot receive the full credit if it turns out that the credit is bigger than your tax bill itself. You won’t expect to receive a refund because of it. On the other hand, you will be allowed to carry the credit over for the next year. There is no cap on the credit amount; however, you cannot claim credit if you install the system on a property that you rent out. Reduced credit is available for homes you live in part time. Additionally, you may not receive a credit for solar panels that heat a swimming pool or hot tub. If you are intent on solar panel installation, the tax credits will be just one more incentive to relying on solar energy. For many, it is just an added bonus rather than the central reason for having the panels installed.