How Do I Claim My Federal Solar Tax Incentive
Note: This is not tax advice. Please consult with your tax professional.
There is plenty of information about the value of the federal solar tax credit, but when tax season is upon us figuring out how to actually claim the tax credit is another story. We’ll walk you through it.
Determine if you are eligible for the federal ITC and make sure that the federal tax liability is in order.
Complete IRS Form 5965 to validate your qualifications for solar energy credits.
Add your solar energy credit information to your typical Form 1040.
What Documents Might I Need?
When filing your federal taxes you will need to fill a few documents You will need:
How to complete Form 5695
Form 5695 calculates tax credits for various other residential energy improvements. We’ll use the average cost to go solar in the Pacific Northwest as an example.
Here’s our example: You pay $20,000 to install a solar system on your home in 2016, which means you are eligible for a $6,00 federal solar tax credit. If your federal tax liability for 2016 is only $5,000, you will owe no federal taxes that year, and in 2017, you will reduce your tax liability by $1,000.
You will first need to know the qualified solar electric property costs. That will be the total gross cost of your solar energy system after any cash rebates. Do not calculate Washington’s production incentive as it is not needed in this form. Add that to Line 1.
Do you have any additional energy improvements? If so, add them to Lines 2 through 4 and add them up on Line 5
On Line 6, multiply Line 5 by 30%. This is the amount of your federal solar tax credit.
In this example, we are assuming you are only claiming tax credits for the solar project and not fuel cells and you aren’t carrying forward any credits from the previous year. Therefore, put the Line 6 value on Line 13.
Next, we need to calculate if you have enough tax liability to receive all 30% credit in year one.
To do so, you will need to complete the worksheet on page 4 within Instructions for Form 5695. If you are claiming tax credits for interest on a mortgage, buying a home for the first time, adoption expenses, or buying a plug-in electric vehicle or hybrid, you will need that information here. (In this example, we assume a federal tax liability to total $5,500).
Enter the value on Line 14 of Form 5695. Review Line 13 and Line 14, and put the small of the two values on Line 15.
Is your tax liability small than your tax credits? If so, subtract Line 15 from Line 13, and enter it on Line 16. That’s the amount you can claim on your next year’s taxes.
Don’t forget! Add tax credit to Form 1040
The value on Line 15 will be the amount you’ll be credited on your federal taxes this year. Enter the value into Form 1040, line 53 (or Form 1040NR, line 50).
The above example outlines all you need to do in order to claim your 30% tax credit from your solar panel system on your federal taxes. If you have had energy efficiency improvements to your home in the same tax year, you may also need to complete the back page of Form 5695.
And that’s it. Be sure to include Form 5695 and copy of your signed contract/invoice when you submit your taxes to the IRS.