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The Federal ITC Tax Credit

Updated: Jun 8, 2023

Claiming the Solar Tax Credit

Americans who are considering adopting solar energy can benefit from various financial incentives. Among these incentives, the federal Investment Tax Credit (ITC) stands out as one of the most significant. Commonly referred to as the Solar Tax Credit, this program provides substantial savings for homeowners who transition to solar power. To take advantage of this credit and maximize your tax benefits, it is essential to properly complete Form 5695, which serves as the official claim document.

If you're unsure about how to fill out Form 5695 to claim the Solar Tax Credit, this comprehensive article will guide you through the step-by-step instructions, ensuring that you can successfully receive the credit you are entitled to.

What is the Solar Energy Tax Credit?

The Solar Tax Credit is a federal incentive that allows individuals to claim a tax credit for their solar energy systems, effectively reducing their federal tax liability. The credit is calculated as a percentage of the total cost of the solar system, with the current rate set at 30% until the end of 2032. It's important to note that the deadline to qualify for the 30% Solar Energy Tax Credit is December 31, 2032.

The Federal Investment Tax Credit for residential solar was extended for 12 years until 2034 by the Inflation Reduction Act of 2022. During this period, the solar tax credit will remain at 30% until 2032, after which it will gradually decrease to 26% in 2033 and then to 22% in 2034.

This federal tax credit for residential solar energy aims to make solar power more affordable by providing a dollar-for-dollar reduction in taxes. To be eligible for the credit, your solar energy system must have been put into service during the current tax year, and you will need to complete IRS Form 5695.

Unlike deductions, these tax credits directly lower the amount of tax owed, potentially resulting in a tax refund. It's important to understand that the tax credit does not act as a "discount," as individuals are still responsible for covering the costs of the solar system and then claiming the credit from the IRS when filing their tax returns. Regardless of whether or not they itemize deductions on Schedule A, taxpayers can claim these credits on IRS Form 5695.

IRS Fact Sheet

This Fact Sheet issues frequently asked questions about energy efficient home improvements and residential clean energy property credits.

IRS Fact Sheet
Download PDF • 354KB

What is IRS Form 5695?

Form 5695, commonly known as the Solar Investment Tax Credit Form, is the official document that individuals submit to claim a credit on their tax return for installing solar panels on their home. To obtain a copy of Form 5695, you can visit the Internal Revenue Service (IRS) website and review their instructions for filling out the form.

Form 5695 primarily focuses on the concept of "Residential Energy Credits," which is the specific term used by the IRS to calculate non-refundable credits for residential energy-efficient properties. However, it's important to note that these credits are only applicable to qualified residential energy-efficient improvements made within the United States. This includes various renovations such as residential solar panel systems, solar energy storage, fuel cells, geothermal heat pumps, and small wind turbines.

How to Fill Out IRS Form 5695

To claim the solar tax credit, which serves as a valuable financial incentive for installing solar panels in your home, you need to follow a few important steps:

  1. Determine your eligibility for residential energy credits.

  2. Properly complete Form 5695, which is the necessary form for claiming the tax credit.

  3. Ensure that you include Form 5695 when filing your tax returns.

While Powur is committed to promoting clean energy solutions for the general public, we want to emphasize that we are not tax experts. For specific inquiries regarding the correct completion of Form 5695 to claim the Federal Investment Tax Credit, we strongly advise consulting a licensed accountant or tax professional.

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