With the rise of renewable energy solutions and the government’s push for green initiatives, the federal solar tax credit has been an attractive incentive for many homeowners looking to invest in solar power. The credit can cover up to 30% of your solar installation costs and is one of the most lucrative tax credits available today. However, filing this tax credit can be a complicated process. In this blog post, we will provide you with a step-by-step guide on how to file your federal solar tax credit so that you can take advantage of this important incentive without any hassle.
What Do I Need to File for the Federal Solar Tax Credit (ITC)?
To file for the central solar tax credit, you’ll need to have your completed installation invoice or contract, as well as your proof of purchase for the solar energy system. You’ll also need to fill out four IRS Tax Forms for your solar tax credit:
- Form 1040
- Schedule 3 (Form 1040)
- Form 5695
- Instructions for Form 5695 (latest version)
How to Calculate Your Solar Tax Credit
If you’ve installed solar panels on your home, congratulations! Not only are you helping the environment and saving money on your energy bills, but you may also be eligible for a federal solar tax credit (ITC). Here’s how to calculate your solar tax credit:
Take the total cost of your system and multiply it by 0.30.
For example, if you spent $30,000 all-in on solar (parts, labor, permits, etc), then your tax credit would be worth 9,000.
$30,000 (gross cost) x 0.30 (30% tax credit) = $9,000 Residential Clean Energy Credit
In order to receive this credit, you need to claim it on your taxes for the year the system was deemed operational by a government inspector. So if you got installed and got approved in 2022, then you would claim the federal solar tax credit on your 2022 taxes that you file in April of 2023.
Now that you know how to calculate the credit amount, let’s provide the next step, filling out the Federal Solar Tax Credit.
How to File for the Federal Solar Tax Credit – Step-by-Step
Fill in Form 1040 as you normally would. When you get to line 5 of Schedule 3 (Form 1040), shown below, it’s time to switch to Form 5695.
Step 1: Calculate how much your solar tax credit is worth
- On Form 5695, enter the full amount you paid to have your solar system installed, in line 1. This includes costs associated with the materials and installation of your new solar system. As an example, we’ll say $30,000.
- For this example, we’ll assume you only had solar installed on your home. Enter “0” for lines 2-5.
- Line 6a – Add up lines 1 through 5.
- Line 6b – Multiply the amount in line 5 by 30% (.30)
- Line 7a – Check “No.” Again, for this example, we’re assuming you didn’t have any other systems installed, just rooftop solar.
- Lines 7b, 8, 9, 10 and 11 – Don’t apply to you in this example for the same reason. You can fill each with 0 and skip down to line 12.
Step 2: Rollover any remaining credit from last year’s taxes
- Line 12 – If you filed for a solar tax credit last year and have a remainder you can roll over, enter it here. If this is your first year applying for the ITC, skip to line 13.
- Line 13 – Add up lines 6b, 11 and 12
Step 3: Check if you have any limitations to your tax credit.
- Line 14 – You’ll need to switch to the worksheet at the top of page 4 in the Form 5695 instructions.
Step 4: Find out how much of the remainder (if any) you can roll over into your tax return next year
Almost done! Switch back to your Form 5695.
- Line 14 – Enter the number from line 3 of the worksheet.
- Line 15 – Enter the lesser number of line 13 or 14 (it depends on what your total tax bill is vs. your total tax credits).
- Line 16 – Find the difference between lines 15 and 13 to see if there’s any credit to carry forward for next year. In our example, it zeros out.
Step 5: Apply the amount found in Form 5695 to your tax bill on Form 1040
You did it! Your solar tax credit is now claimed on your 1040 and can be used to reduce your tax liability.
If you had other solar or renewable systems installed, like a new geothermal or solar water heater, there would be more to add in.
And that’s it! Hopefully, this gives you a clear and hassle-free idea on the step-by-step filing of your Federal Solar Tax Credit.
To learn more about Infinity Energy’s solar panel installation and services, feel free to contact us at (845) 250-3737 or visit https://justgo.solar/.
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