Guide to the Federal Solar Tax Credit

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Now we’re talking! The solar tax credit was increased to 30% – rewarding you for doing the right thing!

The U.S. Federal Solar Tax Credit for installing solar photovoltaic systems at your home was increased to 30%. This clean energy incentive remains until 2032. The tax credit for the residential solar panel and storage system can be claimed against federal income taxes owed. The installation of the solar energy system must be completed before or during the tax year which it will be claimed. It’s a dollar-for-dollar deduction, meaning a claimed $3000 tax credit would reduce your federal income tax owed by that full $3000. And, importantly, there is no maximum on the amount that can be claimed.

We at Nature’s Generator are celebrating this increase to the federal solar tax credit because our mission is to make reliable renewable solar energy available and affordable to everyone. This increase in the solar tax credit will help U.S. households afford the solar panels as well as the solar-powered generator storage systems that are covered by this federal solar tax credit.

Timing is everything! Nature’s Generator Eco-intelligent Li is here! 

This federal solar tax credit increase could not have happened at a better time! Nature’s Generator just launched our Eco-intelligent Li system which is ground-breaking in the solar industry. This smart battery management system (BMS) is the first that allows the user the benefits of both lithium iron phosphate (LiFePO4) battery technology and sealed lead acid (SLA) battery technology.

Our Eco-Intelligent Li system offers more cost-effective materials, high-temperature stability, faster recharging, reduced weight, and increased power output, not to mention a safer lithium iron phosphate technology which has over four times the lifespan (up to ten years!) of the now-common lithium-ion technology. 

LifePO4 and SLA compatibility

The Eco-Intelligent LI is the only battery management system that allows SLA battery technology to work in tandem with the long-life LiFePO4 technology. This innovation was designed to save consumers money. If a user has previously invested in a Powerhouse SLA system, they will be able to affordably upgrade their system at any time with the Eco-Intelligent Li battery management system.

New and old battery compatibility

Additionally, this intelligent battery management system allows old and new Eco-Intelligent Lithium batteries to be combined. This means users will not need to replace their entire battery system in the future. And remember Nature’s Generator solar-powered systems are infinitely expandable.

The innovative Eco-Intelligent Li provides a current-sharing control strategy to ensure a common discharge of batteries to prevent the older batteries from adversely impacting the new ones. In the past if a new battery was added to an older system, the new battery would be quickly drained. This new smart battery management system solved that problem.

Game-changing Eco-Intelligent Li technology increases affordability.

Because the Eco-Intelligent Li battery management system extends battery life and supports the mix of old and new lithium batteries and a mix of lithium and lead acid batteries, now users can get the best of both worlds and can use the longer-life lithium iron phosphate and highly affordable lead acid technologies simultaneously. The new product offers real-world solutions to affordably maintain or expand solar-powered generator systems. 

This Eco-Intelligent Li is a technological leap forward that will save consumers hard-earned money and, importantly, perhaps help humanity save the world.

Utilizing the abundant solar energy available can help save the world.

It can’t be ignored in these climate-change times that access to affordable solar PV systems will be necessary to expedite worldwide efforts to reduce global-warming greenhouse gases. 

The UC Davis “Solar Power” website gives us this statistical data: 

“The 70 percent of solar energy the Earth absorbs per year equals roughly 3.85 million exajoules. In other words, the amount of solar energy hitting the earth in one hour is more than enough to power the world for one year.” 

If we could effectively harness even a percentage of this abundant, free, clean, and sustainable energy hitting the Earth each daylight hour we could wean ourselves from polluting fossil fuels which would aid in saving our planet’s ecosystems. 

Scientists have predicted a short window for humans to implement planet-saving changes. Solar energy is a crucial factor in reducing our carbon footprint -- but simply having solar panels is not enough.

Solar-powered generators are a must to store solar power for later use.

To make home-solar-energy systems work off-grid or to help people avoid the need to use dirty energy, a solar-powered generator system is required to store the energy generated for later use at times the sun is not shining.

If solar-powered systems aren’t affordable – they won’t be widely used.

Finally, the last crucial element to this world-saving formula is that people must be able to afford the technology -- or it simply won’t get used. That’s where the Nature’s Generator new Eco-Intelligent Li technology shines – it keeps the cost to maintain or upgrade solar-powered systems low. 

Solar-power expert and Nature’s Generator CEO, Lawrence Zhou, explains:

“Nature’s Generator was founded on the principle of making clean electricity available and affordable to people everywhere to aid in the climate-change fight.  We know if it’s not reasonably priced it will stay on the shelf. We also know people work hard for their money -- so we work equally hard to keep our products affordable. The Eco-Intelligent Li technology was designed to save consumers money by being able to maintain or upgrade solar generator systems without replacing them.”

The federal solar tax credit increases solar-powered systems’ affordability.

The increased 30% federal solar tax credit can greatly aid U.S. homeowners in being able to buy a residential solar panel and solar-powered generator whole-home system to harness the free, abundant, clean energy of the sun.

 Do you qualify for the federal solar tax credit?

You’re eligible for this tax credit If this criterion is met:

1. You installed or will install a solar photovoltaic system between Jan. 1, 2017, and Dec. 31, 2032.
2. The solar photovoltaic system is new or being used for first time – the credit can only be claimed on the a “original installation” of the solar equipment.
3. The solar system is located at a residence of yours in the United States and is either:

• Owned by you through purchase or finance – this means that you can’t be leasing the equipment or paying to purchase the electricity generated by the system; or
• You purchased an interest in an off-site community solar project, if the electricity generated is credited against, and does not exceed your home’s electricity consumption. (It’s important that you own an interest in the off-site community project and are not simply buying electricity from it.)

What expenses are included in the federal solar tax credit?

The following expenses are covered under the tax credit:

• Solar photovoltaic panels or cells technology.
• Labor costs for a contractor’s onsite preparation, assembly, or original installation work which includes permitting fees, inspection costs, and developer fees.
• Balance-of-system equipment – including wiring, inverters, and mounting equipment.
• Energy storage devices -- like solar-powered generator systems that have a capacity of 3 kilowatt-hours or greater (for systems that were installed after Dec. 31, 2022. Note that if the generator storage system is installed in a later tax year than the solar panel energy collection system, it is still eligible, but the energy storage devices are still subject to the installation date requirements. More information at: energy.gov)
• The sales tax that was paid on eligible expenses.

What if I received incentives other than the federal tax credit?

Following are some common monetary incentives for solar equipment that are given by other entities, along with each incentive is a brief explanation of how it interacts with the federal solar tax credit.

A rebate from your utility company is subtracted before figuring the credit.

In general, subsidies given by your utility company for installing a photovoltaic system are excluded from income taxes by an exemption in federal law. Because of this, a utility rebate for installing a solar system will be subtracted from your system’s costs before you calculate the federal solar tax credit. This means if your system costs $18,000 but your utility provided a one-time rebate of $1000 for installing your system, that you would figure your federal tax credit by first subtracting the $1000 rebate from the $18,000 system cost before calculating the 30% tax credit. The calculation would be: ($18,000 - $1,000) x 30% = $5,100 solar tax credit

Payment for Renewable Energy Certificates won’t impact solar tax credit.

If your utility or other entity gives you a monetary incentive in exchange for renewable energy certificates or other environmental credits for the clean electricity generated – either upfront or over time – that payment is considered taxable income. That means the payment will increase your gross income, but it will not reduce the federal solar tax credit. 

(This information came from a private letter ruling which may not set a firm precedent for other taxpayers to absolutely rely on, so you would be wise to go to the Database of State Incentives for Renewables and Efficiency website where you can investigate the circumstances of your own case.)

Rebates from your state government won’t impact federal solar tax credit.

Rebates from your state generally will not reduce your federal tax credit. So, if you installed a solar photovoltaic system in 2022 and the eligible costs totaled $18,000 and your state gave you a one-time rebate of $1000 it would not impact your federal solar tax credit. The calculation would be: $18,000 x 30% = $5,400 solar tax credit. 

State tax credits for the installation of solar photovoltaic system...

Generally, solar tax credits from your state do not reduce your federal tax credit. However, if you go the energy.gov website and read their “Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics” you will see the following information explaining that the state credit amount will be, for all intents and purposes, taxed at the federal income tax level –here’s why:

“State tax credits for installing solar PV generally do not reduce federal tax credits—and vice versa. However, when you receive a state tax credit, the taxable income you report on your federal taxes may 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 (SALT) deduction through 2025. Therefore, if a homeowner is still paying more than $10,000 in SALT after claiming a state tax credit, the state tax credit benefit would not effectively be reduced by the federal tax rate, as it would not impact federal taxes (due to the SALT limit).) Therefore, 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.”

FREQUENTLY ASKED QUESTIONS ABOUT THE FEDERAL SOLAR TAX CREDIT:

Can I claim the federal solar tax credit if I am not a homeowner?

You can. You don’t have to be a homeowner to claim the federal solar tax credit. A tenant-stockholder at a cooperative housing corporation and members of condominiums are still eligible for the tax credit if they contribute to the costs of an eligible solar photovoltaics system. 

The amount you contribute to the cost of the solar PV system is the amount you use to calculate your tax credit. Also, note that you can’t claim a tax credit if your landlord installs and pays for a solar system, because you must be an owner of the system to claim the tax credit. 

What if I financed my solar PV system?

If the system was financed through the seller of the system which you are contractually obligated to pay, you can claim the federal solar tax credit based on the full cost of the system – however, remember things like interest owed on financing, origination fees, and extended warranty expenses are not eligible expenses. 

What if I have purchased the solar panels but haven’t installed them?

Then you don’t qualify for the federal solar tax credit -- the credit applies only to systems for which have been installed. 

What if the solar PV system is on my U.S. vacation home? 

Solar photovoltaic systems do not necessarily have to be installed on your primary residence for you to claim the tax credit.  However, please note that the energy.gov website does clarify that for a rental unit:

“The residential federal solar tax credit cannot be claimed when you put a solar PV system on a rental unit you own, though it may be eligible for the business ITC under IRC Section 48. See 26 U.S.C. § 25D(d), which specifies that eligible solar electric property expenditures must be “for use at a dwelling unit located in the United States and used as a residence by the taxpayer” (emphasis added)”.

What if my home’s not connected to the electric grid?

A residential solar PV system doesn’t have to be connected to the grid for you to claim the federal solar tax credit if it is generating electricity for use at your residence.

What if the solar PV panels are located on my property but not on the roof?

The solar PV panels located on your property do not necessarily have to be installed on your roof, providing they generate electricity for use at your residence.

What if I participate in an off-site community solar program?

The IRS states in Questions 25 and 26 in its Q&A on Tax Credits that off-site solar panels or solar panels that are not directly mounted on the taxpayer’s home could qualify for the residential federal solar tax credit under some circumstances. However, community solar programs can be structured in various ways, and even if you are eligible for the tax credit, it may be difficult to claim due to other tax rules. If you go to energy.gov there is more information on this topic.

I bought a new house built in 2022 which I occupied in 2023, does it qualify? 

Generally, you can claim a tax credit on the expenses related to the new solar PV system that came installed on your new house for the year you moved into the house -- assuming the builder did not claim the tax credit. So, in this case, you should ask the builder to make a reasonable allocation for these solar PV costs on your new home for purposes of calculating your federal solar tax credit and then you could claim it in 2023.

What if I have a home office or use my home for a commercial purpose?

If the home where you install the solar PV system serves multiple purposes like a home office or having your business located there as well as it being your residence, claiming the tax credit can be more complicated. 

This is how the energy.gov website explains it:

“When the amount spent on the solar PV system is predominantly 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.” (This link should help you sort out that issue.)

Can I use the solar tax credit against the Alternative Minimum Tax?

The short answer is yes, the tax credit can be used against either the federal income tax or the alternative minimum tax.

What if the tax credit exceeds my tax liability, do I get a tax refund?

It is a nonrefundable tax credit, meaning you won’t get a tax refund for the amount of the tax credit that exceeds your tax liability -- but you may still get a tax refund at the end of the tax year if this tax credit caused an over-deduction or over-payment during the year. This can often happen if your employer deducts taxes for you through payroll over the course of the year. But even this over-payment refund will still be limited by your total tax liability for the year that you are claiming the tax credit with this one caveat – if you can’t use the full credit that year, you can carry over any unused amount of the tax credit to the next tax year.

How do I claim the federal solar tax credit?

After seeking professional tax advice and ensuring you are eligible for the credit, you can complete and attach IRS Form 5695 to your federal tax return (Form 1040 or Form 1040NR). Instructions for filling out this form are available online.

Nature’s Generator and people across the U.S. are celebrating this increase in the Solar Tax credit to 30% which will be good through the year 2032!

What this means is people can take advantage of this tax credit to greatly reduce the cost of their solar panels and generator systems. Remember, there is no maximum on the amount that can be claimed. A 30% federal solar tax credit can help you save now as well as on costly electricity price-increases in the future. It can also help us all do the right thing by moving to clean, renewable, solar energy as soon as possible.

Nature’s Generator solar-powered Powerhouse is a whole-home system.

With this federal solar tax credit, you can get Nature’s Generator’s state-of-the-art solar power panels and one of our affordable whole-home solar-powered Powerhouse generator systems. 

With the introduction of our new Eco-Intelligent Lithium battery management system the Powerhouse is now available in a variety of models including a Powerhouse: 1.) with the highly affordable original SLA technology, or 2.) using a hybrid system with both SLA and LiFePO4 technologies, or 3.) with a full LiFePO4 system that can be linked to an existing SLA Powerhouse system or can stand alone. Nature’s Generator is always working to increase your choices so you can select the solar-powered generator system that best matches your home’s power needs.

Remember these important federal solar tax credit points.

Remember that with this federal solar tax credit you can include the expenses for the solar PV panels and the labor costs for a contractor’s onsite prep, assembly, and installation work -- plus permitting fees, inspection costs, and developer fees. 

Additionally included in the federal solar tax credit are things like wiring, inverters, and mounting equipment as well as solar energy storage devices like solar-powered generators that need to have a 3 kilowatt or larger capacity to qualify. Plus, the sales tax paid on these eligible expenses can also be included in the calculations for your federal solar tax credit. Finally, remember it is a dollar-for-dollar deduction -- meaning that 30% of your system’s total eligible costs can be claimed against your federal income taxes owed. 

This is truly an example of good legislation to help people do the right thing for the environment, as soon as possible, to help ourselves and future generations continue to enjoy this planet we call Earth.

Please see all the Nature’s Generator highly affordable photovoltaic panels and solar-powered generator products at: naturesgenerator.com

Disclaimer: *From Jan. 1, 2023, to qualify for the federal solar tax credit the battery storage technology system must have a 3kWh or more capacity and is required to be installed by a connection to a United States residence lived in by the taxpayer. You should always consult your tax professional to determine your eligibility for the Residential Clean Energy Credit under Section 25D of the Internal Revenue Code who can examine your individual situation and circumstances. Nature’s Generator does not guarantee that you will qualify for this tax credit and any information we provide is solely for educational purposes and should not be considered legal advice, professional tax advice, nor financial guidance. Additionally, you should not rely solely on this blog as your source of information when making purchasing decisions, investment decisions, tax decisions, and/or buying a solar (EV) system. Consult a tax professional to fully evaluate your eligibility for this tax credit. If you qualify, then it is a great program to help you save money on a solar (EV) system.

**For more detailed information visit: energy.gov website and read the Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics which gives links that you and/or your tax advisor can use to get just the exact forms/information necessary to claim your US federal solar tax credit.