Can You Claim the Solar Tax Credit on a Second Home?
Disclaimer: This material is for informational purposes only. It is subject to change and should not be relied upon for tax advice. We always recommend speaking with a tax professional before making tax-related decisions.
The solar tax credit is the best incentive for home solar panel installation. It saves you 30% on the equipment and installation labor costs, making residential solar significantly more affordable.
Most people know they can claim the tax credit for their primary residence, but there’s a lot of confusion about whether it applies to second homes. In this guide, we explore how the solar tax credit works and how you can use it to install solar panels on a vacation home or secondary property.
Understanding the Solar Tax Credit
The federal solar tax credit, also known as the Investment Tax Credit (ITC), allows homeowners to reduce their federal income tax liability by 30% of their solar installation costs. It was originally established in 2005 as part of the Energy Policy Act and has been updated several times since, most recently as part of the Inflation Reduction Act. The solar tax credit has played a significant role in solar energy adoption throughout the United States.
Here’s an example of how it works. Let’s say you spend $20,000 on a solar panel installation. You can claim a tax credit worth 30% of your $20,000 investment, which comes out to $6,000. When you file your taxes for the year you installed your solar panels, you can apply your $6,000 credit to your federal income tax liability. If you owe $7,000, for example, your $6,000 credit will bring that number down to $1,000. If the amount of the credit exceeds your tax liability, the credit can be carried over to future tax years. For example, if your solar tax credit is $6,000 and you owe $4,000 in federal taxes, you can use the remaining $2,000 credit in the following year.
Claiming the Solar Tax Credit on a Primary Residence
Claiming the solar tax credit for your primary residence is straightforward. The tax credit applies to the installation of a solar energy system on a home you own in the United States and live in for the majority of the year. The expenses covered by the credit include the cost of solar panels, solar batteries, racking/wiring equipment, labor, and installation fees.
To claim the tax credit, you’ll need to file IRS Form 5695, Residential Energy Credits, with your federal tax return for the year in which the installation was completed. The form requires you to provide details about the solar installation, such as the total cost and the amount of credit you’re eligible to receive. The credit is then applied to reduce your overall tax liability for that year.
Claiming the Solar Tax Credit on a Secondary Residence
The federal solar tax credit can also be claimed on a second home, as long as the solar energy system meets the eligibility requirements. The tax credit works the same whether you claim it for a primary residence—you receive a credit worth 30% of your solar installation that reduces your federal income tax liability for the year you installed your solar panels.
However, there are specific conditions to be aware of when claiming the credit for a second home:
- Personal Use Requirement: The second home must be for personal use, and you must live in it for some part of the year. If you rent the property out, it is not considered a personal residence and may not qualify for the residential solar tax credit. It may, however, be eligible for the commercial solar tax credit, which is an equivalent incentive.
- No Double Claiming: You can claim the solar tax credit twice, but only on one property per year. If you install solar systems on both your primary and secondary homes in the same year, you can only claim the credit for one of them.
Maximize Your Solar Savings with SouthFace Solar & Electric
Investing in solar energy for both your primary and second home is a smart way to reduce energy costs and take advantage of valuable tax incentives like the federal solar tax credit. SouthFace Solar & Electric specializes in helping homeowners navigate the complexities of solar installation, maximizing your savings and ensuring you qualify for all available incentives. Our experienced team will guide you through every step, from selecting the right solar system for your home to meeting tax credit requirements.
