The federal government offers a non-refundable tax credit for solar installations equal to 30% of the price of a solar project until 2032. This credit is commonly referred to as the “federal incentive” or “ITC,” which stands for “Investment Tax Credit.”
Claiming the ITC is a great way to make solar affordable--for those who can claim the full credit, it essentially amounts to a 30% discount on the cost of their system.
In this article, we'll go over how the federal incentive works, how to claim it, and its limitations.
How the ITC Works
A non-refundable tax credit is a credit that is applied to your tax liability, but it doesn’t directly increase your refund. This means that the ITC will reduce the amount of money you owe the government for the tax year in which you installed the solar system.
Because your tax liability is decreased, you may receive a larger tax refund if your employer has withheld income throughout the year.
However, advertising that claims you'll get a "check from the government" for installing solar is misleading--many customers simply experience a reduced "balance owed" to the federal government.
How to Claim the ITC
Claiming the ITC is simple. Because all Project Solar installs (DIY and Full Install) are owned systems, and not leases or PPA's, the system should qualify automatically for the credit (unless it's affected by one of the limitations below).
Project Solar will provide you with all the information needed when you receive your invoice, and claiming the credit can be easily done by you or your tax preparer by filling out Form 5695.
For a step-by-step walkthrough, check out this helpful article from our friends at EnergySage.
Because it doesn’t directly increase your tax refund, people who don’t owe much in federal taxes may not benefit as much from the ITC--you can only claim as much as your tax liability.
However, the credit can roll over for up to five years after the purchase.
Another limitation is that the ITC can only be claimed once per property. This means that you can't claim the ITC again if you plan to add more solar later, so it's a good idea to plan ahead and purchase a system that will meet your needs.
As always, the best resource for tax questions is a tax professional–this article is intended as general knowledge and shouldn’t be considered tax or financial advice.