How does the solar tax credit work if i don t owe taxes

Mosaic’s solar loan programs are built to be flexible, simple and affordable — and, in the case of CHOICE loans, the monthly payments are specifically structured with the federal tax credit in mind. However, whether you opt for a CHOICE or a PLUS loan, you have the option of reducing your monthly loan payments by using your federal tax credit — or your own savings. Here’s how it works:

CHOICE: Mosaic’s CHOICE loan product is structured with the federal tax credit in mind, with lower monthly payments you can lock in by applying the full amount of your credit. Here’s how it works:

• If you make the voluntary CHOICE prepayment before the end of month 18, it can reduce your monthly payment beginning in month 19
• The earlier the CHOICE payment is applied, the lower future payments will be
• If you pay down your loan by less than the specified CHOICE target loan balance, your monthly payment goes up

It’s your CHOICE!

PLUS: Mosaic’s PLUS loan product — which can be used to finance other home improvements, in addition to solar and batteries — has monthly payments that do not assume the use of the federal tax credit. However, if you opt to use either the tax credit or personal savings to make voluntary prepayments to reduce your loan principal in the first 18 months, your monthly payments will be reduced for the remainder of the loan term — just like CHOICE. However, unlike CHOICE, if you choose to not make any extra pre-payments, your monthly payments will not increase.

In both the CHOICE and PLUS products, your decision of how much or whether to pay down will never change your interest rate, and there are never any prepayment penalties.

We highly recommend that you consult a tax advisor about your personal federal tax credit eligibility to determine if you can take advantage of the tax credit and apply it to your loan. For non-tax related questions, we also have a wonderful customer support team waiting to answer any additional questions you may have.

* Availability of Federal & State Tax Credits is dependent on your unique financial situation. Please consult a tax professional regarding your eligibility.

Read this guide to the federal solar tax credit to learn how to maximize your solar savings.

Since 2005, the federal government has incentivized homeowners to switch to solar through the solar investment tax credit (ITC), also known as the federal solar tax credit. The rate of this credit has fluctuated over the years, but currently lets homeowners claim 30% of their total solar system installation costs as a deduction on their federal taxes. The ITC will decrease to 26% in 2033 and drop to 22% in 2034. It will end in 2035 unless Congress renews it.

We at the Home Media reviews team have researched the best solar installation companies in the United States to understand the industry and available incentives. This guide covers how to qualify and file for the federal solar tax credit and how to file for it so you can save more on your solar power system.

What Is the Federal Solar Tax Credit?

The solar investment tax credit is a credit you claim on your federal income taxes. The ITC is not a tax deduction. Instead, it reduces what you owe in taxes. This credit applies to the costs associated with installing a solar photovoltaic (PV) system in that tax year. There is no maximum amount that you can claim from your solar project.

How Does the Tax Credit Work?

You can claim the federal solar tax credit as long as you are a U.S. homeowner and own your solar panel system. You can claim the credit once; it will roll over to the next year if the taxes you owe are less than the credit you earn. Keep in mind that the credit is a deduction, not a refund.

For example, if you install a solar panel system for $19,000, you’ll owe $5,700 less on your federal tax return. If your tax liability is less than $5,700, the remainder of the credit will roll over and be applied to your federal income taxes the following year.

How To Claim the Federal Solar Tax Credit

You claim the solar tax incentive as part of your annual federal tax return with the Internal Revenue Service (IRS). Your solar provider should supply the proper documentation and instructions upon your demand. We have listed the essential steps in claiming the credit here: 

1. First, download IRS Form 5695 as part of your tax return. 
2. Then, on Part I of the tax form, calculate the credit. You file your solar system as “qualified solar electric property costs.” Then, on line 1, enter your project’s total costs as written in your solar contract. 
3. Complete the calculations on lines 6a and 6b. 
4. On line 14, calculate any tax liability limitations using the IRS’s Residential Energy Efficient Property Credit Limit Worksheet. 
5. Finally, complete the calculations on lines 15 and 16. Be sure to enter the exact figure from line 15 on your Schedule 3 (Form 1040), line 5.

We recommend that taxpayers consult a tax expert and your solar provider to ensure you are correctly claiming the ITC. 

We encourage you to check for any sales and property tax exemptions that may be available in your state in addition to the ITC. For example, in California, you can take advantage of the Self Generation Incentive Program (SGIP). This program provides an up-front rebate for installing an energy storage system. Like the ITC, this incentive’s value declines over time as more solar battery installations occur in California. The SGIP is currently in Step 6, or $200 per kilowatt-hour (kWh) of stored energy capacity. With this amount, the popular solar battery, the Tesla Powerwall 2, would provide around $2,700 in total savings.

You can use the Database of State Incentives for Renewables & Efficiency (DSIRE) to see which rebates and state tax credits are available in your ZIP code.

We spoke with Garrett Nilsen, the deputy director of the U.S. Department of Energy’s Solar Energy Technologies Office, and he recommends:

“Incentives can vary across the country, so it’s important for homeowners to understand what they’re eligible for from the federal and local levels before going solar. An experienced local installer should be able to assist you in claiming any state and local incentives, as well as the ITC.”

Do I Qualify for the Federal Solar Tax Credit?

The Office of Energy Efficiency & Renewable Energy (EERE) states the following criteria determines whether you can qualify to claim the federal solar tax credit: 

• Date of installation: You installed your solar system between Jan. 1, 2006, and Dec. 31, 2034.
• Original installation: The solar PV system is new. The credit can be claimed only on the original installation of solar equipment and not the repurposing or reuse of an existing system. 
• Location: The solar system is located at your primary residence or secondary home in the United States. It may also be used for an off-site community project if the electricity generated is credited against your home’s electricity consumption and does not exceed it.
• Ownership: You own the solar PV system. You cannot claim the credit if you are leasing or in an agreement to purchase electricity generated by the system, including a solar power purchase agreement (PPA).

What Does the Federal Solar Tax Credit Cover?

According to the EERE, the federal solar tax credit covers the following items: 

• Panels: The credit covers solar PV panels or PV solar cells. 
• Additional equipment: The credit covers other solar system components, including the balance-of-system equipment and wiring, inverters and other mounting equipment. 
• Batteries: The ITC covers storage devices, such as solar batteries, charged exclusively by your solar PV panels. It also covers storage devices activated in a subsequent tax year to when the solar energy system is installed. Beginning on Jan. 1, 2023, stand-alone energy storage that doesn’t charge solar panels exclusively will qualify for the ITC credit.
• Labor: Labor costs for on-site preparation, assembly or original solar installation are covered. This includes permitting fees, inspection costs and developer fees.
• Sales tax: The credit also covers sales taxes applied to these eligible expenses.

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The Bottom Line

The federal solar tax credit makes switching to solar a cost-effective and worthwhile investment. We suggest you contact a tax professional for tax advice, as well as the IRS and your solar provider to claim the Solar ITC.

If you are still searching for a reputable solar company, use our tool below to compare solar providers near your home.

Frequently Asked Questions About the Federal Solar Tax Credit

State Incentives and Cost Guides