A tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe. For example, claiming a $1,000 federal tax credit reduces your federal income tax dues by $1,000. The federal tax credit is sometimes referred to as an Investment Tax Credit, or ITC. This is different from the ITC offered to businesses that own solar systems.
The federal residential solar energy credit is a tax credit that can be claimed on federal income taxes for a percentage of the cost of a solar photovoltaic (PV) system.
You might be eligible for this tax credit if you meet all of the following criteria:
State tax credits for installing solar PV generally do not reduce federal tax credits—and vice versa. But, when you receive a state tax credit, the taxable income you report on your federal taxes will be higher than it otherwise would have been because you now have less state income tax to deduct. The Tax Cuts and Jobs Act of 2017 placed a $10,000 limit on state and local tax deduction, which may impact whether a state tax credit impacts federal taxable income. The end result of claiming a state tax credit is that the amount of the state tax credit is effectively taxed at the federal tax level.
For instance, the final percentage reduction for a solar homeowner in NY who claims both the 25% state tax credit and the 26% federal tax credit for an $18,000 PV system is computed as follows, assuming a federal tax rate of 22% :
[$18,000 * 0.26] + [$18,000 * (1 – 0.22) * (0.25)] = $4,680 + $3,510 = $8,190
Can I claim if
1.I installed a Solar PV on my vacation home in the United States?
Yes. Solar PV systems do not necessarily have to be installed on your primary residence for you to claim the tax credit.
2. I am not connected to the electric grid?
Yes. A solar PV system does not necessarily have to be connected to the electric grid for you to claim the residential federal solar tax credit, as long as it is generating electricity for use at your residence.
3. My residence is also used for a commercial purpose?
Yes, but if the residence where you install a solar PV system serves multiple purposes (e.g., you have a home office or your business is located in the same building), claiming the tax credit can be more complicated. When the amount spent on the solar PV system is mostly used for residential rather than business purposes, the residential credit may be claimed in full without added complications. However, if less than 80% of the solar PV system cost is a residential expense, only the percentage that is residential spending can be used to calculate the federal solar tax credit for the individual’s tax return; the portion that is a business expense could be eligible for a similar commercial ITC on the business’s tax return.
*Source – https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics