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Federal Tax Credit

Overview

This document provides a comprehensive guide to understanding the Federal Solar Tax Credit, including its benefits, eligibility requirements, and application process. This information is intended to help new solar system owners maximize the financial advantages of going solar. Please note, Icon Power is not a tax professional entity, and homeowners should consult a tax professional for advice specific to their financial situation.

What is the Federal Solar Tax Credit?

The Federal Solar Tax Credit allows eligible homeowners to claim a tax credit equal to 30% of the gross cost of their solar energy system. This credit applies to systems purchased or financed and is available at the 30% rate through 2032. Starting in 2033, the credit will decrease to 26%, then to 22% in 2034, before phasing out entirely in 2035.

How the Credit Works

The credit reduces a homeowner’s federal tax liability on a dollar-for-dollar basis. For example, if the total system cost is $30,000, the homeowner would be eligible for a $9,000 tax credit (30% of $30,000). The credit is non-refundable, meaning it cannot exceed the amount of taxes owed in a given year. However, any unused credit can be carried forward to future tax years until it is fully utilized.

Understanding Tax Liability

Tax liability refers to the total amount of federal taxes owed throughout the year. The solar tax credit can offset this liability but does not generate a refund if the credit exceeds the amount owed. Homeowners can think of the tax credit as a prepayment or gift card to the IRS that reduces future tax payments.

Filing for the Credit

To claim the Federal Solar Tax Credit, homeowners must file IRS Form 5695 with their tax return.

• Self-filers: Tax preparation services, such as TurboTax, provide guidance on how to report solar system purchases.

• Tax professionals: Provide the tax preparer with system details, including the total cost, to ensure the credit is accurately applied.

Eligibility Requirements

Only homeowners who own their solar system (through cash purchase or financing) are eligible for the tax credit. Systems under lease agreements or Power Purchase Agreements (PPAs) do not qualify, as the homeowner does not own the system.

Additional Information

For more details on the Federal Solar Tax Credit, homeowners are encouraged to review the IRS guidelines and consult a tax professional. Icon Power support is also available to assist with questions related to system size, cost, and installation details.

For further assistance, please contact Icon Power support or visit the IRS’s official page on the tax credit.

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Updated on February 3, 2025
Table of contents
  • Overview
    • What is the Federal Solar Tax Credit?
    • How the Credit Works
    • Understanding Tax Liability
    • Filing for the Credit
    • Eligibility Requirements
      • Additional Information

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