Simplified Guide to Understanding the 2023 Solar Tax Credits

There is a lot of information out there about available solar tax credits! We’ve put together all you need to know to get started.

What Is the Federal Solar
Tax Credit?

The federal solar tax credit is a tax incentive from the government worth 30% of the total cost of your solar upgrade. For example, if the cost of your solar upgrade is $20,000, you will get a federal tax credit of $6,000. This means you’ll get either a portion or all of what you owe for your federal income taxes covered the following year.

In the example above, the solar tax credit will cover what you owe for the current tax year, leaving you with an excess amount that can be applied to what you owe the following tax year.

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What Expenses Are Included?

The federal solar tax credit covers most, if not all, of the costs associated with installing solar panels. Qualified costs include:

• Equipment such as the solar panels themselves, battery backup systems, racking, wiring, and inverters.
• Labor costs such as any permitting fees and inspections and site preparation, installation, and planning.
• Any sales tax associated with the above equipment and labor costs.

The great news is this tax credit isn't just for solar installations. Other eligible clean energy systems include solar water heaters, fuel cell systems, geothermal heat pumps, and even small wind energy systems.

How Do You Qualify?

Most homeowners in the US will qualify for the tax credit, but there are a few cases where you may not be eligible. You need to meet the following requirements to be eligible:

• You must have a taxable income.
• The solar panel system must be installed at your primary or secondary residence.
• The solar panel system must be claimed on the original installation of the project.
• You must be the owner of the solar panel system.

If you use a lease of solar power purchase agreement (PPA), you cannot claim the tax credit. The best way to take advantage of the incentives is to purchase the system in full or use a personal loan.

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What Other Incentives Are Available?

There are two other incentives you should know about:

(1) the state solar tax rebate and
(2) utility company rebates.

The exact amount is based on the current incentives in your area and cost of the solar panel system. A solar representative can provide more details during the quote process.

Keep in mind that the electric company rebates are deducted from the total cost of your solar panel system, which reduces the amount you will receive in federal and state tax credits. For example, if your solar upgrade cost $25,000 and your utility credit was $1,000, the 30% federal tax credit would be calculated like this: