It’s about that time of year…yep, tax time.
We know taxes aren’t that much fun, unless you actually enjoy that sort of thing. However, if you’re a new solar panel owner, doing your taxes could be a bit more exciting this year.
If you purchased and began installation of a new solar array or residential solar energy system in 2020, you may be eligible to claim the federal solar tax credit, also known as the Investment Tax Credit (ITC), on your taxes!
This means you could get up to 26% of the price of your new solar energy system back on your federal taxes. Now, that’s good news.
In this post, we’re going to look at how to claim this incredible solar incentive. Let’s dive right in.
Claiming the Residential Federal Solar Tax Credit
For more on the federal solar tax credit, or the ITC, check out this recent blog post.
When you’re ready to claim the credit on your 2020 taxes for the purchase of a new residential solar energy system, here’s how you do it.
3 Steps to Claim the ITC on your 2020 Taxes
To claim the solar tax credit, just follow these three easy steps:
1. Determine Your Eligibility
A few questions to ask yourself to determine if you are eligible to claim the investment tax credit on your taxes:
- Do you own your solar energy system? Only owned systems are eligible; if you are leasing a solar array, you are unfortunately not eligible for the ITC.
- Did you purchase your system in 2020? If yes, you may be eligible to claim the full ITC on your taxes. Even if you purchased your solar energy system prior to 2020, you may be eligible to “carry over” any portion of the credit that was previously unused. And if you have not yet purchased your solar panels, you will need to wait to claim the credit in the year that you buy your system.
- Did you at least begin solar panel installation in 2020? Installation must be complete, or at the very least, in progress by the end of 2020 to claim the credit on your 2020 taxes.
- Will your tax liability be greater than the amount of the ITC? If so, you are eligible to apply the full amount of the 26% tax credit to your 2020 tax liability. If not, you can likely still claim part of the credit and carry over what remains to your taxes in following years.
- Do you own the property the solar panels are servicing? If you own the property and live there for at least part of the year, you are eligible. The property does not have to be your primary residence.
2. File IRS Form 5695
IRS Form 5695 is the form you will use to claim applicable residential energy credits. From the latest set of instructions on how to use this form, you are to “Use Form 5695 to figure and take your residential energy credits. The residential energy credits are:
- The residential energy efficient property credit, and
- The nonbusiness energy property credit.
Also use Form 5695 to take any residential energy efficient property credit carryforward from 2018 or to carry the unused portion of the credit to 2020.”
Note that these instructions were last updated in 2019, though at the time of this post they still apply to your 2020 tax credit. Just use the dates as they apply in your situation, particularly when it comes to carrying any unused portion of the credit forward.
3. Add the ITC to Your IRS Form 1040 Using Schedule 3
After you’ve used Form 5695 to determine the total of your investment tax credit for solar, carry that final number over to your traditional tax Form 1040 or 1040-SR. You’ll find the appropriate line on Schedule 3.
Solar Sam: Helping You Find Affordable Solar Energy Solutions
Solar Sam is a fast-growing local solar provider and professional solar installer. We provide Missouri solar, Kansas solar, and Illinois solar, but we also service the entire continental United States.
Why choose Solar Sam? Solar Sam will help you find quality, expert solar solutions for residential, commercial, and agricultural applications at prices you can afford.
Visit our website for deals that are out of this world! When you’re ready to take advantage of this incredible federal tax incentive, give us a call at 833-RU-SOLAR (833-787-6527) to get started with a free quote.
Solar Sam loves helping our customers power their lives with green energy run by the sun!