Thanks to massive public awareness campaigns, the American public has become more aware about the benefits and promise of renewable energy. Both home and business owners realize that they can power their buildings for less money without negatively impacting the environment.
To help people make the transition from fossil fuels to renewable energy, the federal government continues to offer tax credits that people can claim when they file taxes. You can claim your own Solar Tax Credit by learning what it is and how you can take advantage of it when you file your next tax return.
Solar Tax Credit Overview
The Solar Tax Credit is a credit that both home and business owners can claim on their tax returns. It credits these individuals most or all of the cost of installing a solar system in their buildings.
The credit is regarded as a form of investment tax credit and not available to people who rent their homes. Still, people who are eligible for it can be credited upwards of $5000 on their federal tax returns depending on the type and cost of the solar system that they install.
Solar Tax Credit History
This tax credit originated with the passing of 2005's Energy Policy Act. This act extends through the end of 2021 and allows people who meet the criteria for claiming it the opportunity to claim up to 30 percent of their systems' installation costs on their federal taxes.
The act originally was set to expire at the end of 2007 before it was extended to the end of 2016. Congress allowed its expiration to be pushed back until 2021 after energy industry insiders recommended the extra time to allow solar energy to reach its maximum potential among U.S. home and business owners.
As such, the act stipulates the percentage amount that you can recoup on your taxes until it expires. Those percentages and correlating years are:
- 30 percent until the end of 2019
- 26 percent in 2020
- 22 percent in 2021
- 10 percent in 2022 and afterward
If you plan on claiming this solar tax credit on your returns, it is important that you know what steps to take to ensure that you are given the proper amount.
How to Claim the Solar Tax Credit
To claim this credit, you must fill out and submit the IRS Form 5695 with your federal income tax returns. This form can be found online at www.irs.gov.
You should use it to calculate how much of a credit you can rightfully claim on your returns. Once you have figured out that amount, you should transfer that number to the return before submitting it to the IRS.
If you are unsure of how to calculate the credit properly, you should make use of tax prep resources available to taxpayers. For example, you can retain a tax professional to help you figure out if you can claim the credit and how much the percentage is to which you are entitled. You should keep and provide all of the receipts and other paperwork from the installation of your solar system in your home or business.
You should also remember that if the solar tax credit cannot be given to you in the form of a refund. If you are owed a credit, the IRS will allow you to apply it to your next year's tax returns. It is still not known if solar tax credits will be viable after the act expires in 2021.
More Americans are switching from using fossil fuel to solar power. The IRS helps you make this switch by encouraging you to claim the Solar Tax Credit when you file your federal tax returns.