2023 Federal Solar Tax Credit Guide: How To Claim Clean Energy Credits

Georgette Kilgore headshot, wearing 8 Billion Trees shirt with forest in the background.Written by Georgette Kilgore

Solar Panels | March 29, 2024

Woman with a solar panel getting cash from someone in the government building from the federal solar tax credit after reading a guide to solar tax credit and understanding how does the solar credit work if you don't owe taxes as well as income limit to claim solar tax credit.

The federal solar tax credit allows you to deduct a certain amount from the total taxes that you owe, depending upon the cost of the solar energy system that you have installed in your home.

Also known as an investment tax credit (ITC), the federal solar tax credit is different from an ITC offered to businesses.

It is an important aspect for many people and organizations as they look at the respective options when it comes to energy utilization, energy sources, and the overall costs of moving forward with one specific plan or another. Many individuals seek to control costs as they make their decisions and understanding how these tax incentives work can certainly prove to be beneficial.

But learning exactly how does solar tax credit work and how do you claim it can be a tricky task for many homeowners.

To help you get all the answers that you need, you can get more information from this federal solar tax credit guide, which explains how to claim clean energy credits.

What Is a Federal Solar Tax Credit?

A federal solar tax credit reduces your tax liability. Tax credits are specific dollar amounts deducted from your total payable taxes at the end of the year.

You can therefore claim your solar tax credit on your annual tax returns to reduce the amount you owe the IRS. This incentive can prove to be helpful in minimizing relevant tax liabilities.

The federal solar tax credit is associated with the investment tax credit (ITC). An ITC is typically offered to businesses.

But in order to promote the installation of clean energy photovoltaic (PV) solar systems, the government offers this ITC to homeowners across the United States.

It is otherwise known as the clean energy credit that also applies to other renewable energy applications such as wind turbines and fuel cells.1

Screenshot from IRS website with yellow arrow pointing at Residential Clean Energy Credit.

(Image: Internal Revenue Service17)

Before you claim your federal solar tax credit, it is crucial that you learn if you are eligible for it in the first place. The following section helps you determine if you can claim your solar tax credit in line of the current requirements.

What Are the Eligibility Requirements To Claim a Federal Solar Tax Credit?

When claiming a federal solar tax credit on your yearly income tax return, there are some things that are required.

Graphics of checklist for eligibility requirements to claim a federal solar tax credit showing a residential house on the map of U.S.

These include:

You Have Installed the PV Solar System at Your Home

The solar tax credit only applies to PV solar energy systems that are installed at a home where the tax filer lives either as their primary or secondary residence.1

Is it necessary to own the house? That is a wonderful question.

The answer is a resounding no! Did you know that it is possible to apply for the federal solar tax credit even if you are only a person that is temporarily living within the residence and have a lease agreement with the landlord?

A crucial point is that it must show up as your primary living space. This means that you will likely use this for your billing address and it will be present on bank documents and matters of that nature.

You Are Not Renting the Home To Someone Else

To obtain the federal solar tax credit, remember one key aspect, physical presence matters.

If you use it regularly, then it is likely that you can benefit from this amazing opportunity. However, if you do not use the location, or are renting it to someone else, you need to double check the IRS guidelines.

You Have Purchased and Own the Solar Energy System

In order to get your federal solar tax credit, you need to own the PV solar system that you have installed at your home.

There are a few points to remember here. The most crucial is that it is not necessary to have fully paid for it upfront.

It is possible to finance it and still take the credit.

Your Home Is Located in the United States

The federal solar tax credit is only applicable to homes that are located in the United States. This, of course, makes sense.

The credit is designed to incentivize emissions-free electricity for US residents. Remember, you can claim the clean energy credit for homes throughout the United States.

You Installed Your PV Solar System Between 2006-2034

Solar PV systems installed between 2006-2034 are eligible for the federal solar tax credit.2

Two solar panel installers on a residential roof, installing polycrystalline solar panels.

(Image: Trinh Trần18)

But if you installed your PV solar system before 2022 or after 2032, it can affect how much solar credit you may claim.3

Your Solar Energy System Is New

You can only get the federal solar tax credit for new PV solar systems. This means that pre-owned systems do not qualify for the credit.

When buying your PV solar system, make sure that it is a brand-new setup that is being used for the first time at your home.

The federal solar tax credit is only applicable for PV solar systems that are new and being used for the first time. In case you purchased a pre-owned system from a provider, you would not be able to claim your solar tax credit on your tax returns.

Since this stipulation can have a direct effect on your overall affordability for installing a PV solar system, it is important for you to do your due diligence if you are interested in solar energy recycling or reuse.

Alternative To Home Installation: You Have Invested in a Community Solar Project That Supports Your Home’s Energy Needs

Community solar projects are funded by a group of individuals to supply renewable energy to their property. If you have not installed a traditional PV solar panel but opted for an investment in a community solar project that fulfills your home’s energy requirements, you may still be eligible for claiming your federal solar tax credit.4

This concludes the eligibility criteria section for this 2023 federal solar tax credit guide: how to claim clean energy credits. After determining if you qualify for the solar tax credit, you can easily learn how does solar tax credit work and how much tax incentive you may get upon your PV solar system installation.

What Is the Residential Clean Energy Credit?

The Residential Clean Energy Credit extends its support to renewable energy solutions other than PV solar systems such as energy-efficient windows, doors, and insulation.

If you have made any energy-efficient upgrades to your home besides the installation of a solar energy system, you can check if they qualify for the Residential Clean Energy Credit.

You can use Form 5695 to claim your credit.10

With the Inflation Reduction Act of 2022,7 the Residential Clean Energy Credit was extended for energy-efficient upgrades. The tax credit is non-refundable, which means that it does now allow cash refunds.

But you can claim any remaining credits in your future tax bills.

Has the Federal Solar Tax Credit Helped With Increasing the Adoption of Clean Energy?

In order to expand the usage of renewable energy, federal and state governments have introduced many programs over the years. With that being said, the success of these efforts is questionable at best, as highlighted in a 2022 research published by Stanford University.11

In the study, data collected and processed through artificial intelligence (AI) showed that the introduction of tax credits for the adoption of solar energy only appeals to areas with high-income households.

Whereas, low-income families do not see the appeal of these programs due to how these incentives are structured.

A man carrying solar panel.

(Image: Kindel Media19)

According to the study, the reason is simple, even if it needs more data to be conclusive. Since high-income households have a higher amount of taxes each year, non-refundable tax credits that are exclusively applicable to their tax bill appeal to them for reducing their tax liability.

On the other hand, low-income households have little to no tax bills, which renders the tax credits virtually unusable for them. This bars them from getting the most out of these programs that are seemingly for everyone to get more affordable renewable energy.

This calls for more improved incentives, in tax payments and otherwise, on both the federal and state level. When rewards are introduced with everyone in mind, it could help with the larger adoption of renewable energy.

Can You Claim a Solar Tax Credit if You Rent Your Home?

You can certainly claim your solar tax credit for a home that you rent and use as your residence. But you need to purchase your solar energy system instead of renting it.

You can also use financing to purchase your new PV solar system and claim your clean energy credit for it. This means that for rental homes, the federal solar tax credit is applicable for tenants instead of landlords.

Two piece of photovoltaic solar cells with unattached cables on the roof, ready for installation.

(Image: Marufish22)

Besides installing your own PV solar system in the home that you rent, you can also invest in a solar community project to claim your federal solar tax credit. As long as your solar community projects fulfill a set of conditions such as meeting your specific energy needs, you can file for a solar tax credit.

In essence, it is possible to claim your solar tax credit for a home that you rent and use as your residence. But there is an important point in this regard, recall that it is necessary for you to purchase your solar energy system.

It is not applicable to those that are in the process of leasing or renting their respective sun-oriented system. But owning your system does not mean that you have to place quite a bit of funds in the system upfront.

What Is the Inflation Reduction Act Solar Tax Credit?

The Inflation Reduction Act solar tax credit is also known as the federal solar tax credit. At the time of filing your tax returns, it gives you a tax credit to reduce your tax liability.

This tax credit is up to 30% of the total cost of your PV solar system.

The Inflation Reduction Act solar credit is also known as the federal solar tax credit, solar tax credit, and clean energy credit. The clean energy credit by itself also covers other energy-efficient installations such as wind turbines and geothermal heat pumps.

How Does Solar Tax Credit Work in 2023?

In 2023, the federal solar tax credit follows the same guidelines that were set by the U.S. Congress in August 2022.3 These guidelines included the qualifying criteria that are mentioned above as well as the percentages of the PV solar system installation cost that you can claim as a tax credit.

Applicable Federal Solar Tax Credit According to the Year of PV Solar System Installation

Year of Installation Federal Solar Tax Credit
2017 30%5
2018 30%6
2019 30%6
2020-2021 26%3
2022-2032 30%3
2033 26%3
2034 22%3

Bar graph of federal solar tax credit per year of PV solar system installation showing year on the x-axis and percentage values on the y-axis.

In line with the Inflation Reduction Act of 2022,7 the current solar tax credit of 30% of the total installation cost of PV solar systems will remain in place until 2032.

After the drop in 2033 and 2034, the federal solar tax credit is set to expire in 2035 unless the government takes more actions to increase the time on the program.

Additionally, there is no maximum limit to the amount that you can get through a federal solar tax credit. For instance, if your total qualifying cost for your PV solar system is $20,000, you may get a tax credit of up to $6,000.

Wide shot of residential houses with solar panel on their roof.

(Image: MARIANNE RIXHON20)

Similarly, if your PV solar system cost is $30,000, your tax credit will be $9,000. At the federal level, this remains one of the most supportive practices to reward homeowners for using renewable energy.

The federal solar tax credit applies to the following expenses for a PV solar system.3

  • Solar panels
  • Wiring
  • Inverters
  • Energy storage solutions
  • Other installation equipment (such as mounting devices)
  • Labor costs
  • Sales tax

There is a limit to how much solar tax credit you can get on certain equipment such as energy storage devices. Additionally, if you installed your PV solar equipment with a loan, your solar tax credit will not apply to any financing or loan origination charges.

While this stipulation can make a difference in the amount that you can claim as a tax credit on financed solar energy systems, it still helps in terms of overall affordability of clean energy installation. This makes it easier for homeowners across the United States to install different types of solar panels with the support of this tax credit.

What’s the Difference Between Federal Solar Tax Credit 2022 and 2023?

The federal solar tax credit essentially works the same way in 2023 as it did in 2022 in terms of qualifying criteria and how the credit lowers your overall tax bill.

PV solar systems installed in 2022 and 2023 get the same amount of tax credit incentive, which is 30% of your total installation cost.3 This is mainly due to the Inflation Reduction Act of 2022 that not only raised the amount of tax credit that you can receive for a PV solar system installation,7 but also extended the tax credit to 2034.

With that being said, after 2032, you may see certain changes in the federal solar tax credit. For instance, in 2033, the tax credit will lower to 26% of the total installation cost of a solar energy system; in 2034, it will further reduce to 22%.

The tax credit is set to expire in 2035 until the U.S. Congress passes an extension.3

How Does the Solar Tax Credit Help You Reduce Solar Energy Costs?

A solar tax credit does not directly reduce your solar energy costs, but it gives you a significant sum from your installation costs back by shaving it off of your tax bill.

Since this amount goes up to 30% of your total PV solar system installation cost and does not have a threshold, it can go a long way toward helping you manage your solar energy cost within the year of the system’s installation.

If your tax credit reduces your tax bill to zero and still has some amount left over, you can use it to reduce future tax liabilities in the next few years.

Wide shot of a wooden house with solar panel system installed on its roof with trees and clear blue sky on its background.

(Image: Robert Senz21)

With that being said, it is important to remember that the solar tax credit is non-refundable, which means that it is not a cash payment. You can only benefit from it in terms of reducing the amount that you owe to the IRS.

This makes it similar to programs such as the California electric car rebate.

What Does California Solar Tax Credit 2022 Offer?

California has several programs in place to assist those homeowners who want to use renewable energy. These programs include but are not limited to:

  • Active Solar Energy System Exclusion:12 This excludes the installation of solar energy systems from property assessment, which prevents your property tax from increasing.
    This program is set to expire in 2025
  • Disadvantaged Communities—Single-family Solar Homes (DAC-SASH): This program offers various benefits to low-income families that could benefit by installing solar energy systems to fulfill their requirements
  • Self-Generation Incentive Program (SGIP): This program motivates homeowners to rely on self generation energy equipment. It has certain benefits that are applicable to qualifying groups13

At the same time, you can still claim the federal solar tax credit to reduce your tax bill, whenever applicable.

What Is the Iowa Solar Tax Credit?

The state of Iowa used to offer a Solar Energy System Tax Credit for residential properties.14 But it is no longer applicable.

When it was active, the program enabled those who owned homes to reach out to the state and see if they met the qualifications for the state solar tax credit. Of course, a key requirement was completing the installation of their PV solar system.

Under the specific program, qualifying applicants could receive a state tax credit of up to $5,000. The Iowa Solar Energy System Tax Credit may still be in place for small and large business installations that started construction before January 1, 2022.

How Much Do Solar Panels Cost?

How much do solar panels cost depends upon a variety of factors. These include but are not limited to the solar panel’s size, wattage, and quality.

It is important to consider providers and their different costs and project bids. Feel free to ask them how they are different, the materials that they use, and the durability of the PV systems that these suppliers provide.

On an average basis, the cost of a complete PV solar system may range from $5,000-$18,000.16 But prices may easily fall out of this range on a case-to-case basis.

Check through different resources ranging from your local community to people and sites online and in your extended network to see if they can recommend providers that they may trust for solar panel installation projects.

How To Get Solar Panels for Free

The idea of learning how to get solar panels for free can be exciting. But the truth is you cannot get solar panels for free.

However, what you can do is benefit from certain programs that help you reduce the overall or upfront costs of installing these systems.

Graphics of programs to lessen solar installation cost showing options like financing, leasing, government-assistance, and tax credits.

These options include but are not limited to:

  • Financing
  • Leasing
  • Tax credits
  • Government-assistance

How Much Power Does a Solar Panel Produce?

How much power does a solar panel produce depends upon various factors. For starters, solar panels are not limited to a single power capacity.

Similar to portable generators, the amount of energy that a solar panel can deliver varies according to its size and associated wattage. Other factors such as the environmental conditions in which a solar panel operates and the amount of full sunlight that it gets in a single day also influence its power generation capabilities.

There are many different ways to conduct research on this matter. It is a crucial one.

This specific matter helps you to know how much you will have to rely on the traditional energy grid entities and how much of the energy will come from your system.

If you are looking to conduct research on the solar panel production matter, reach out to those who have experience. These people may vary from those that are your neighbors to those that are in your family and even those that you interact with on online forums and even the right websites as well.

This is quite critical as it is how you will determine the benefits, the value, and the overall costs involved in the process as well.

What Is the Average Solar Panel Output per Day?

The average solar panel output per day varies on a case-to-case basis.

The factors that influence a solar panel’s output include but are not limited to the solar panel’s wattage, its location, and the amount of unobstructed sunlight that it receives in a single day.

Solar panel system installed on a green roof of a house directly absorbing sunlight and convert as source of energy.

(Image: Dave Dugdale24)

For instance, a 500-watt solar panel with 5 hours of direct sunlight may produce 2.5 kilowatt-hours (kWh) a day. But if the panel’s sunlight exposure is obstructed by clouds, its output may drop by half.

Does the Federal Solar Tax Credit Lower Your Taxable Income?

The federal solar tax credit does not lower your taxable income, but it reduces the total amount that you owe in the tax year.

Let us take a look at a specific scenario so that we can make this concept a bit more clear, more transparent, and simple. Imagine an income scenario, if your taxable income is $100,000, your calculated tax bill is $5,000, and your solar tax credit is $6,000, your solar tax credit will not only bring down your tax bill to zero but also allow you to carry forward the remaining credit of $1,000 to use in your next year’s tax bill.

How To Claim Solar Tax Credit

If you seek to follow a few key steps. The first step is to realize that you can claim it by checking out the right resources.

Then move on and begin to claim your solar tax credit by filling out IRS Form 5695 and file it with your tax returns in Form 1040.8 You can easily get Form 5695 from the IRS website and get your solar tax credit with relative ease.

Since you will be filing Form 1040 for your tax returns anyway, you just need to add information about your PV solar installation and the applicable federal solar tax credit in Form 5695.

Once you file your taxes, the IRS will inform you about your eligibility for the federal solar tax credit.

What Is Form 5695?

Form 5695 is an IRS form that allows you to list your applicable clean energy credits in one place. It is submitted with Form 1040,8 which is the form that you use to file your tax return each year.

Screenshot from IRS website about form 5695, Residential Energy Credits with yellow arrow pointing on the website title.

(Image: Internal Revenue Service23)

In Form 5695, you can list energy-efficient improvements that you have made around your home. Besides a PV solar system, this may also include solutions such as energy-efficient windows, doors, and thermal solutions.

You can get the IRS Form 5695 with your tax return Form 1040 and file both of them together. It is easy to find federal tax forms by yourself.15

But you may also reach out to a professional accountant or use a tax filing app to get assistance with the process.

How Does the Solar Tax Credit Work if I Don’t Owe Taxes?

If you do not work full-time or do not generate sufficient income to pay taxes, the solar tax credit will not further reduce your tax liability.

Through this 2023 federal solar tax credit guide: how to claim clean energy credits, you can get a precise idea about reducing your taxes with a solar tax credit.

If you have further inquiries such as what does a solar panel do, you may also go through the following set of common questions that taxpayers as well as current and future solar energy system owners often have in mind.

The Federal Solar Tax Credit Can Make It Easier for You To Embrace Renewable Energy

Learning about the federal solar tax credit can be a little tricky. But with benefits such as no limit to the credit amount and the ability to carry it forward for future tax bills, understanding the process can reward you for years to come.

By using the federal solar tax credit to your advantage, you can make renewable energy a part of your life without stretching yourself thin.

Frequently Asked Questions About Federal Solar Tax Credit

Can I Claim Both the Federal Solar Tax Credit and State Solar Tax Credit?

You can claim both your federal solar tax credit and applicable state solar tax credit for the same PV solar system. But it is important to remember that getting a tax credit from your state may increase your total taxable income when you are filing your federal tax returns.2

What Is the Federal Solar Tax Credit 2022 Income Limit?

There is no income limit on the federal solar tax credit.4 You can claim the full solar tax credit according to the cost of your PV solar system regardless of how much you earn in a year.

What if My Federal Solar Tax Credit Is More Than My Tax Bill?

If the amount of tax that you owe is less than your solar tax credit, you will not have to pay any taxes for the year. In such cases, you can simply file your tax returns with Form 5695.

What if I Have Leftover Amount From My Solar Tax Credit?

If some amount from your solar tax credit is left after reducing your total taxes for the current year, you can carry it forward for future use in the next few years.

Can I Get a Refund for the Federal Solar Tax Credit That I Have Not Used?

The federal solar tax credit is a non-refundable tax credit,9 which means that you cannot get a cash refund for the unused amount. But you can use any leftover amount from your solar tax credit in the following years to reduce your future tax bills.


References

1IRS. (2023, April 27). Residential Clean Energy Credit. IRS. Retrieved May 24, 2023, from <https://www.irs.gov/credits-deductions/residential-clean-energy-credit>

2U.S. Department of Energy. (2021, January). Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics. Department of Energy. Retrieved May 24, 2023, from <https://www.energy.gov/sites/default/files/2021/02/f82/Guide%20to%20Federal%20Tax%20Credit%20for%20Residential%20Solar%20PV%20-%202021.pdf>

3U.S. Department of Energy. (2023, March). Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics. Department of Energy. Retrieved May 24, 2023, from <https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics>

4Adams, R. (2023, March 16). Federal Tax Credit for Residential Solar Energy – TurboTax Tax Tips & Videos. TurboTax. Retrieved May 24, 2023, from <https://turbotax.intuit.com/tax-tips/going-green/federal-tax-credit-for-solar-energy/L7s9ZiB4D>

5Internal Revenue Service. (2018, February 22). 2017 Instructions for Form 5695. IRS. Retrieved May 24, 2023, from <https://www.irs.gov/pub/irs-prior/i5695--2017.pdf>

6Rakoczy, C. (2019, January 10). Residential Energy Credits Available for 2018 Taxes. Credit Karma. Retrieved May 24, 2023, from <https://www.creditkarma.com/tax/i/residential-energy-credits-for-2018>

7The White House. (2022, August 15). BY THE NUMBERS: The Inflation Reduction Act. The White House. Retrieved May 24, 2023, from <https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/>

8Walden, R. (2022, August 22). Tax Treatment for Solar Panels: Business vs Individual Use. Illinois Tax School. Retrieved May 24, 2023, from <https://taxschool.illinois.edu/post/tax-treatment-for-solar-panels-business-vs-individual-use/>

9Cornell Law School Legal Information Institute. (2021, October). tax credit | Wex | US Law | LII / Legal Information Institute. Law.Cornell.Edu. Retrieved May 24, 2023, from <https://www.law.cornell.edu/wex/tax_credit>

10Minor-Hoes, D. (2023). ENERGY STAR Ask the Experts | Products. ENERGY STAR Ask the Experts | Products | ENERGY STAR. Retrieved May 24, 2023, from <https://www.energystar.gov/products/ask-the-experts/the-tax-credits-for-energy-efficient-upgrades-are-back>

11Andrews, E. L. (2022, November 16). Tax rebates for solar power ineffective for low-income Americans, but a different incentive works. Stanford News. Retrieved May 24, 2023, from <https://news.stanford.edu/press-releases/2022/11/16/solar-panels-larealthy-americans/>

12California State Board of Equalization. (2023). Active Solar Energy System Exclusion. California State Board of Equalization. Retrieved May 24, 2023, from <https://www.boe.ca.gov/proptaxes/active-solar-energy-system.htm>

13Wakefield, F., Addison, T., & Neumeister, K. (2023, May 23). California Solar Tax Credits, Incentives and Rebates (June 2023). MarketWatch. Retrieved May 24, 2023, from <https://www.marketwatch.com/guides/home-improvement/california-solar-tax-credits/>

14Iowa Department of Revenue. (2023). Solar Energy System Tax Credits | Iowa Department of Revenue. Iowa Department of Revenue. Retrieved May 24, 2023, from <https://tax.iowa.gov/solar-energy-system-tax-credits>

15USAGov. (2023). Federal tax forms. USA.gov. Retrieved May 24, 2023, from <https://www.usa.gov/get-tax-forms>

16Brill, R., Ogletree, A., & Saddler, L. (2023, May 22). How Much Do Solar Panels Cost In 2023? Forbes. Retrieved May 24, 2023, from <https://www.forbes.com/home-improvement/solar/cost-of-solar-panels/>

17Internal Revenue Service. Retrieved from <https://www.irs.gov/credits-deductions/residential-clean-energy-credit>

18Photo by Trinh Trần. Pexels. Retrieved from <https://www.pexels.com/photo/14614004/>

19Photo by Kindel Media. Pexels. Retrieved from <https://www.pexels.com/photo/person-holding-a-solar-panel-9875443/>

20Photo by MARIANNE RIXHON. Pexels. Retrieved from <https://www.pexels.com/photo/houses-with-solar-panels-on-roofs-6233727/>

21Photo by Robert Senz. Pexels. Retrieved from <https://www.pexels.com/photo/wooden-house-with-solar-panels-on-roof-15319513/>

22Solar Panel Installation Photo by Marufish / Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0). Resized and Changed Format. From Flickr. Retrieved from <https://flic.kr/p/dFWJkk>

23Internal Revenue Service. Retrieved from <https://www.irs.gov/forms-pubs/about-form-5695>

24Solar Panels at Superior Colorado Pool Photo by Dave Dugdale / Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0). Resized and Changed Format. From Flickr. Retrieved from <https://flic.kr/p/7kUyow>