What to Know About the 2021 Solar Tax Credit

How does it work?

A tax credit of any kind works on a dollar-for-dollar basis i.e. you get a complete reduction of the amount of tax you owe ($1000 reduction if you owe a tax of $1000). The Solar Tax Credit is a Federal Tax Credit which encourages the public to incorporate the use of solar energy on their homes.

What is it?

The 2021 Solar Tax Credit or otherwise referred to as the Solar Investment Tax Credit can bring savings to anyone looking to use solar energy by providing a dollar-for-dollar decrease to the owed income tax amount for a percentage of the cost of the solar photovoltaic (PV) system that would be installed. To encourage the public further, there is no maximum cap placed on the amount that can be claimed.

What are the new changes?

Prior to December 31, 2019, any solar PV system that was installed would result in a 30% tax credit for the homeowner. For any PV systems installed in 2020, the tax credit reduced to 26% for all systems installed in 2020. Although, the percentage was due to decrease to 22% in 2022, an extension of the previous law under President Trump has cemented the rate to 26% through December 31, 2022.

As this is a renewable law, these tax credits will begin expiring in 2022 unless renewed.

How do I know if my solar PV system is eligible?

You would be eligible if you meet the following criteria:

Aside from installing solar panels during an active tax year (anytime between January 1, 2021 and December 31, 2022 for the current 26% solar tax credit), it goes without saying that the location of your home must be within the United States to be eligible for this tax credit.
You must also show ownership of the system you’re applying tax credits for i.e. you would have to pay for the system in cash or through financing to claim tax credits for it. If you’re leasing the system, signing a PPA, or are purchasing electricity off of a solar PV system that you don’t own, you will lose your eligibility.
The installation of your solar PV system can be considered original i.e. the system in question is being used for the first time or is new. Any system that has been used before will not meet the eligibility criteria.

As long as the tax credit laws are in effect, you can choose to “rollover” your remaining credits in the future years if you’re facing a situation wherein your tax liability is not enough to claim the entire credit in a year.

How do I make this work for me?

Once you’re sure of your eligibility and tax returns, complete and send the IRS Form 5695 along with any of the federal tax return forms – Form 1040 or Form 1040 NR. If you’ve got any further questions about installations, eligibility, and all things related to solar panels, feel free to reach out to our team at Sunsolar Solutions and we would be happy to assist you further.