Federal Solar Tax Credits & California Solar tax Credits 2022

Federal Solar Tax Credits & California Solar tax Credits 2022*

Federal Solar Tax Credit

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.

Eligibility For Federal Tax Credits

You might be eligible for this tax credit if you meet all of the following criteria:

• Your solar PV system was installed between January 1, 2006, and December 31, 2023.
• The solar PV system is located at your primary or secondary residence in the United States, or for an off-site community solar project, if the electricity generated is credited against, and does not exceed, your home’s electricity consumption. The IRS has permitted a taxpayer to claim a section 25D tax credit for purchase of a portion of a community solar project.
• You own the solar PV system (i.e., you purchased it with cash or through financing but you are neither leasing nor are in an arrangement to purchase electricity generated by a system you do not own).
• The solar PV system is new or being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment.

Eligible Expense Items

• Solar PV panels or PV cells used to power an attic fan (but not the fan itself)
• Contractor labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection costs, and developer fees
• Balance-of-system equipment, including wiring, inverters, and mounting equipment
• Energy storage devices that are charged exclusively by the associated solar PV panels, even if the storage is placed in service in a subsequent tax year to when the solar energy system is installed (however, the energy storage devices are still subject to the installation date requirements)
• Sales taxes on eligible expenses

State Tax Credits

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

FAQs

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.

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*Source – https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics