What is the 2024 solar credit and how does it work?

by Eric Lam - Published 12/22/2023

The solar tax credit, formally known as the Residential Clean Energy Tax Credit, has been significantly impacted by the Inflation Reduction Act.

Here's an overview of the 2024 solar credit and how it works:

What Is the 2024 Solar Tax Credit?

Nature of Credit: An investment tax credit (ITC) designed to promote solar adoption and development.
Goal: To increase investment in solar energy through financial incentives.
Common Names: Known as the solar tax credit, solar panel tax credit, or federal tax credit for solar.
Purpose: Helps to offset the cost of purchasing and installing solar panels.

How Does the Solar Tax Credit Work?

Claiming the Credit: If you've paid for the installation of a qualifying solar system, you can claim a 30% credit.
Mechanism: The credit reduces your income tax liability by a portion of your solar installation costs.

Eligibility for the Federal Solar Tax Credit

To be eligible for the solar tax credit, you need to meet certain criteria:

System Ownership: You must own the solar system. Leased systems or systems on recently purchased property that already had them installed do not qualify.
Installation Location: The system must be installed at your primary or secondary residence.
Activation Date: The system must have been activated after 2017.

Amount You Can Claim

Cost Coverage: The credit can cover the cost of solar panels, installation costs (including permitting and inspection), and battery energy storage systems (3 kilowatt-hours or larger starting in 2023).
No Upper Limit: There is no cap on the amount that can be claimed, but it is limited to eligible costs.
Credit Percentage: The tax credit is 30% of eligible costs and will remain so through 2032.

Claiming the Credit

Filing: To claim the solar tax credit, file IRS Form 5695 during your tax return process.

Recap for 2024

For 2024, the tax credit is 30% of eligible solar installation costs.
The tax credit applies to new solar installations on your property after 2017.
It can significantly reduce your income tax liability.
IRS Form 5695 is required for claiming the tax credit.

Impact of the Inflation Reduction Act

The Inflation Reduction Act extended this tax credit, making solar energy systems more accessible and financially feasible.
This extension is a part of a broader mission to support clean energy and sustainability.

Conclusion

The solar tax credit is a robust incentive for individuals investing in solar energy, significantly reducing the financial burden of such investments and promoting clean energy use in residential settings.

Q&A on the 2024 Solar Tax Credit

Q1: What is the 2024 Solar Tax Credit? A1: The 2024 Solar Tax Credit, part of the Residential Clean Energy Tax Credit, is an investment tax credit (ITC) designed to encourage solar energy adoption and development. It's aimed at increasing solar investments through financial incentives and helps offset the cost of purchasing and installing solar panels.

Q2: How does the Solar Tax Credit work? A2: If you install a qualifying solar system, you can claim a 30% credit. This credit reduces your income tax liability by a portion of your solar installation costs, making solar energy more affordable.

Q3: Who is eligible for the Solar Tax Credit? A3: Eligibility requires system ownership (you must own, not lease, the solar system), installation at your primary or secondary residence, and system activation after 2017. Leased systems or systems on recently bought properties don't qualify.

Q4: What costs can be claimed with the Solar Tax Credit? A4: You can claim costs for solar panels, installation, and battery energy storage systems (3 kWh or larger starting in 2023). There's no upper limit on the claim amount, but it's limited to eligible costs, with the tax credit covering 30% of these expenses.

Q5: How do I claim the Solar Tax Credit? A5: To claim the credit, file IRS Form 5695 with your tax return. The credit is applicable for solar installations on your property after 2017 and can substantially reduce your income tax.