How to Claim the Solar Tax Credit (December 2023)
Legal Disclaimer: At Prodigy Power, we specialize in solar, not in taxes! Tax codes are complicated, so be sure to consult your tax advisor before deciding what is best for you. If you have questions regarding your Federal Investment Tax Credit or IRS Form 5695, do not refer questions to your Energy Specialist or Prodigy Power. Rather, you should discuss your situation with your CPA or other qualified tax advisor. Prodigy Power is not responsible for or liable for any errors or omissions in regards to your personal tax and finance situation or obligation. The following is for informational purposes only, and should not be considered instructions or legal advice.
Eligibility for ITC
To be eligible for the Federal ITC, you must own your solar system. If you have a lease agreement , the third-party owner gets the tax credit for that system. If the residence you want a solar system for is not your primary residence, you are still eligible for the tax credit as long as you own the property and it is not a rental. Learn more here U.S. Department of Energy Guide.
The other piece of determining eligibility is knowing your federal tax liability. If it is lower than your ITC savings, you are able to collect the remaining credits to the next year.
IRS Form 5695
To claim the ITC, all you must do is fill out the IRS Form 5695 “Residential Energy Credits” and include your results on your IRS Form 1040.
Form 5695 is used for various qualified residential energy improvements.
First, you need to find the gross cost of your solar system after any cash rebates. This information goes on line 1. Include any additional improvements, if any, on lines 2 through 4 and add them up on line 5.
Second, on line 6b, multiply line 6a (after adding lines 1 through 5) by 30%
If you are carrying forward any credits from last year, you would skip to line 12 and insert the amount there. If not, you will put the amount from line 6b to line 13.
Next, complete the “Residential Energy Efficient Property Credit Limit Worksheet” on page 4 to calculate if you have enough tax liability to get all 30% of your tax credit in one year. You will need all the tax credits that you are claiming here.
Enter the result on line 14 of Form 5695. Review line 13 and line 14, and put the smaller of the two values on line 15. If your tax liability is smaller than your tax credits, subtract line 15 from line 13, and enter it on line 16.
The value on line 15 is the amount that will be credited on your taxes this year. Enter that value into Form 1040, line 53 (or Form 1040NR, line 50).
These steps have outlined what you need to do to have 30% of the cost of your solar panel system credited back to you! Note if you did additional energy efficiency improvements to your home in the same year, you may also need to complete page 2 of Form 5695.
Be sure to include Form 5695 when you submit your taxes to the IRS.