Guide to the Federal Solar Tax Credit in 2023
The federal solar tax credit is the best solar incentive out there. It makes solar panel installation significantly more affordable for Arizona homeowners so you can add solar to your roof and start saving money on your electric bills ASAP.
The federal solar tax credit in 2023 is the highest it’s ever been, thanks to a recent expansion by the Inflation Reduction Act. If you’re thinking about going solar this year, you don’t want to miss out on the solar tax credit.
In this guide, we cover everything you need to know about the solar panel federal tax credit in 2023.
What Is the Federal Solar Tax Credit?
The federal solar tax credit, also known as the solar Investment Tax Credit (ITC), is a solar incentive that was designed to help homeowners manage the upfront cost of a solar panel installation. It was recently expanded by the Inflation Reduction Act, and you may hear it referred to as the Inflation Reduction Act solar tax credit.
The tax credit reduces what you owe in federal income taxes by a percentage of your solar installation costs. In 2023, the federal solar Investment Tax Credit is worth 30% of your total solar costs.
Let’s say you spend $30,000 on your home solar installation. You’ll receive a federal tax credit worth $9,000. The ITC is a dollar-for-dollar tax credit, so if you owe $10,000 in federal taxes, your $9,000 credit will reduce your liability to just $1,000. If your credit is worth more than what you owe, you can roll the remainder over into the following year.
Who Qualifies for the Solar Tax Credit in 2023?
Most residential solar panel installation projects are eligible for the federal solar tax credit, including rooftop solar panels, ground-mounted solar panels, and off-grid solar panels. As of January 1, 2023, the tax credit now also covers solar battery storage if the battery has a capacity rating of 3 kWh or greater.
To be eligible for the solar energy tax credit in 2023, you must:
- Own your solar system (cash purchase or financed)
- Install your solar system at a residence you own in the United States
- Have taxable income
- Install new equipment that is being used for the first time
The solar tax credit will be available at 30% for solar panel installations completed from 2022-2032. In 2033, the solar tax credit will be reduced to 26%, 22% in 2034, and eliminated entirely in 2034. To receive the credit in a certain year, you must complete the installation and turn your system on by the end of that year. To claim the solar tax credit in 2023, for example, your system must be fully installed and placed in service by December 31, 2023.
What Does the Solar Tax Credit Cover?
Almost all equipment and labor associated with a solar installation is eligible for the federal solar tax credit. This includes:
- Solar PV panels
- Solar inverters
- Solar batteries (must have a capacity rating of 3 kWh or greater)
- Racking and mounting equipment
- Electrical wiring
- Installation costs
- Permitting fees
How to Claim the Federal Solar Tax Credit
Claiming the solar tax credit is a fairly simple process, and you do not need to apply for the credit. To claim your solar credit, you will need to complete IRS Form 5695 and attach it to your annual tax return. To make sure you get the highest credit possible, and to avoid running into any issues when claiming the credit, you should keep all receipts associated with your solar installation.
How Does the ITC Impact Other Solar Panel Incentives?
In most cases, the residential solar tax credit will not affect your eligibility for other Arizona solar rebates and incentives.
Learn More About How You Can Save with Solar
SouthFace Solar & Electric is Arizona’s trusted local solar installer. We have years of experience installing solar panels throughout the entire state and know how to maximize your savings with solar rebates and incentives. If you have questions about the federal solar tax credit and how much it can help you save on solar, give us a call today. Our expert team is here to help with every step of your solar journey, whether you’re just starting out, ready to go solar now, or want to expand your existing solar energy system.
Save 30% on solar with the federal solar tax credit in 2023! Call 480-405-6105 or contact us to schedule a free solar assessment.
Disclaimer: This guide has been created for informational purposes only and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. All information in this guide is subject to change.