In December 2015, the federal government extended a renewable energy tax credit that allows a taxpayer to claim a 30% credit of qualified expenditures that serves a residence unit used by the taxpayer. The ITC (Investment Tax credit) offers an income 30% credit for systems placed in service by December 31st 2019. Simply put, the federal government rewards individuals with a tax credit for investing in solar energy.
How Much Money Can One Save With The Federal Tax Credit?
At the moment, the tax credit amounts to 30% of your total solar system cost. This includes the contractor fees and value of parts used in the installation. For example, if you spend a total of $20,000 to install your solar system, you would be owed a $6,000 credit. This claim is only eligible for people who own their systems. When you install solar panels, other than enjoying the tax credit, you still get the benefit of cheap, renewable energy.
How To Claim The Federal Tax Credit
You have a part to play to ensure that you get your hands on the tax credit. The first thing you need to do is ensure that you keep all your receipts from the start. Be careful to keep track of everything. Some of the expenses you are allowed to claim include:
- Permitting service costs
- Permitting fees
- Equipment purchased or rented
- Wiring, nails, bolts, screw, etc
- Tools bought or rented
- Engineer fees
- Professional installer fees
- Solar consulting fees
- Freight shipping costs
- Solar equipment
Next, in order to claim the tax credit, you need the following:
- IRS Form 5695 for 2017
- IRS Form 1040 for 2017
- Receipts for your solar installation
How To Fill Up Form 5695 With Your 1040 Individual Tax Return
Once you are done with your solar installation and have receipts to provide proof of how much money you spent, you now need to fill the IRS Form 5696. This form is used by the federal government to confirm if you are eligible to claim for a tax credit. After filling Form 5695, you need to add the results to your main tax return for the year you had the solar panels installed.
When filling Form 5695 you only need to worry about line 1. In the space provided you need to fill in the total cost of solar installation. If you are not carrying forward any credits from last year nor getting a tax credit for fuel cells, put the value from line 6 on line 13.
Finally, you need to complete the worksheet on page 4 in the form to calculate the limit on tax credits you can claim. Don’t forget to include other tax credits such as interest on a mortgage, adoption expenses, buying electric vehicle, or buying a home for the first time.
Who Is Eligible For The Solar Tax Credit?
- To be eligible for the solar tax credit, you need to meet the following requirements:
- Ensure the solar system is installed and in service before the end of the year
- You must be the owner of the residence where the solar panels are being installed
- You should have a federal tax liability and enough personal income tax to apply the credit
You need to purchase and own the solar system