Governments around the world are offering programs that encourage homeowners to switch to solar energy. Among the most notable programs is the 30% Federal Solar Tax Credit. It reduces your federal taxable income by 30%. This article dives into details about the tax credit. Let’s get into it.
What is 30% Federal Solar Tax Credit?
The Federal Solar Tax Credit, also referred to as the Residential Clean Energy Credit, is a financial incentive coined by the government to aid homeowners in installing solar systems. This can be in your primary or secondary home.
Qualifiers get a 30% tax credit for the total cost of solar panels, solar batteries, balance system and installation. The tax credit is available in all states. And you can spend as much as you want on your solar system.
Homeowners can combine the federal solar tax credit with state incentives. This reduces the cost of buying and installing the solar system significantly. The program is poised to continue until 2034.
The residential clean energy credit has enabled early and seamless adoption of clean and renewable energy. On the same note, it has allowed the average American homeowner to purchase robust solar systems. In fact, homeowners in warm states such as California have gone off grid, selling excess electricity to their utility companies through the net metering program.
What is a Tax Credit?
As the name suggests, a tax credit is a government program allowing subtraction of a certain amount of money from your taxes. In this case, 30% is deducted from the solar system installation cost. Most governments offer tax credits to encourage their citizens to adopt certain behaviors.
There are several tax credits on offer including the Earned Income Tax Credit and Savers Tax Credit. Governments can also offer tax credits to encourage nationwide adoption of projects. For example, the residential clean energy credit encourages lower-income homeowners to install solar systems.
You should not confuse tax credit with tax deduction or tax rebate. A tax deduction is where a government reduces your taxable income. For example, if your taxable income is $20,000 and you take a tax deduction of $10,000, the government will tax you $10,000.
A tax rebate on the other hand is the government refunding taxes you have already paid. While a rarity in the US, it can be used in times of financial crisis.
How Does the Solar Tax Credit Work?
As mentioned, the solar tax credit reduces your federal income tax by 30%. It reduces the total cost of buying and installing solar panels and batteries. The tax credit was introduced in 2006 and will end in 2034. The percentage deduction varies depending on the year.
If you are to install solar panels between 2024 and 2032, you’ll enjoy a 30% deduction. It reduces to 26% in 2033 and finally 22% in 2034.
|
Year |
Percentage |
|
2006-2019 |
30% |
|
2020-2021 |
26% |
|
2022-2032 |
30% |
|
2033 |
26% |
|
2034 |
22% |
If you installed your solar system before 2006, you don’t qualify for the tax credit. The program was initially referred to as the Solar Investment Tax Credit between 2006 and 2019. It was later renamed to the Federal Solar Tax Credit through the Inflation Reduction Act of 2022. And now it is referred to as the Clean Residential Energy Credit.
Is the Solar Tax Credit Refundable?
No, the tax credit is nonrefundable. It can only reduce your federal taxable income. If it reduces your taxable income below zero, the IRS can allow you to carry forward the tax credit to the next year. This powerful tool allows you to save more money than the tax deduction.
How Do You Qualify for The Federal Tax Credit?
To qualify for the federal tax credit, you must meet the following qualifications.
- The project must be in the US. The IRS defines a US home as anywhere you have lived in the year for which you are claiming the tax credit. The primary residence can be a house, mobile home, condo, houseboat, or a manufactured home.
- You have to be the owner of the system since it does not cover leased systems.
- Only new systems or those being used for the first time can qualify.
- You can qualify for the credit regardless of your financing.
- Not everything is included in the tax credit. For example, it does not cover the cost of installing structures that support the system.
What Other Projects Does the Federal Tax Credit Cover?
You can qualify for the credit if you want to purchase and install the following systems:
- Wind turbines
- Wind systems
- Biomass fuel
- Solar electric
- Solar water heaters
- Geothermal heat pumps
- Fuel cells
- Solar battery storage systems
If you are installing a new solar system, the tax credit can cover the following:
- Cost of installation (inspection costs, technician fees, permit fees)
- Cost of solar panels
- Cost of other accessories such as inverters and mounting systems
- Cost of solar batteries
The solar battery should have a minimum storage capacity of 3kWh. As such, you can claim the credit for as many or a few solar panels and equipment. And there’s no minimum or maximum amount of electricity you can produce.
Can I Apply the Solar Tax Credit When Buying BLUETTI Home Batteries?
Yes, you can claim the 30% tax credit when buying BLUETTI home batteries. These high-capacity batteries allow you to enjoy solar energy at night and during prolonged power outages. The best part is their portability reducing the cost of installation.
Along robust solar panels, you can rest assured of ample electricity for your home energy needs. Furthermore, their capacity is over 3kWh, allowing for automatic qualification.
Here are a few BLUETTI batteries that are eligible for the tax credit.
BLUETTI EP800+B500 Home Battery Backup
You can qualify for the 30% tax credit if you buy the BLUETTI EP800 + B500 model. This reduces the cost significantly. And this model is compatible with existing solar systems, which further reduces the total installation cost. With it, you can enjoy AC and DC coupling. This allows you to connect your devices and solar panels with minimal system reconfiguration.
It has a 9920Wh capacity, ideal for everyday home use. And thanks to the 7600W output, you can use it with large appliances. Like other LifePO4 batteries, it has over 4000 cycles, meaning you can use it for a decade or so. Whether you want to install it indoors or outdoors, this model got you covered. The 20ms response time ensures you don’t have any downtime.
BLUETTI AC500 + B300/B300S | Home Battery Backup
Another home battery that qualifies you for the tax credit is the BLUETTI AC500 + B300/B300S. The portable yet high-efficient battery allows you to enjoy clean and renewable energy any time of the day. Coming with a 6144Wh capacity, it can power most of your appliances. With an integrated mobile app, you can monitor and adjust it from the comfort of your sofa or bed. You just need to connect it to your home WiFi or Bluetooth.
The modular design allows you to add extension batteries to meet your energy needs. And thanks to the integrated 5000W pure sine wave inverter, you can connect as many devices as you’d want. You get different charging options including AC charging and solar. Whether you want to add two or six expandable batteries, this model got you covered.
BLUETTI AC300 + 4*B300 | Home Battery Backup
Finally, you can buy the BLUETTI AC300 + 4*B300 and qualify for the 30% federal tax credit. Like other BLUETTI home batteries, it has a 3000W pure sine wave inverter for stable electricity output. With a 3000W running wattage, it is compatible with large devices. And thanks to the 6000W surge wattage starting your refrigerator or AC system will be seamless.
There are seven ways to recharge the battery including AC, solar, and lead-acid. This means you can use it whether there’s sunlight or not. This model has a LiFePO4 battery with over 3500 life cycles. With it, you are guaranteed high efficiency for many years. And since you can charge it with AC and solar simultaneously, the charging time is reduced significantly.
How Do You Claim the Solar Tax Credit?
To claim the solar tax credit, you’ll have to fill out the IRS Form 5695. You’ll have to include most of your tax information such as the Form 1040. You’ll also need to provide the project’s cost details and the certificate from the manufacturer, ascertaining you qualify for the tax credit.
Can You Use The Federal Solar Tax Credit with Other Incentives?
Yes, you can claim the tax credit with other incentives such as state tax incentives. While a noble approach, it will reduce the tax credit.
Generally, you can combine it with state solar panel incentives. They vary from state to state so you should consult your state’s rules. Texas and California are notable examples offering lucrative incentives. Utility providers also offer incentives, which you can use with the tax credit.
Final Thoughts
The 30% federal solar tax credit is no doubt a program helping Americans to switch to renewable energy. Offered to all citizens that qualify, it reduces the cost of installing a solar system by 30%. You can combine it with state tax credits and utility providers incentives. You automatically qualify for the tax credit if you buy the above BLUETTI batteries.
