Figuring out what you can and can’t claim on your taxes can be a confusing process, and it’s no different when it comes to understanding how to claim the federal solar tax credit. One of the key factors that determines whether or not you’re eligible to claim the solar tax credit is whether you owe any taxes this year. If you don’t have a tax bill, you can’t claim a credit. That doesn’t mean you’ll miss out on claiming your solar investment tax credit (ITC), but it does mean the timeframe for when you can use it is different.
The federal solar tax credit allows you to claim 30% of the cost of your solar energy system when you file your taxes, saving you thousands of dollars on your solar panel installation. If your solar panels cost $30,000 to install, that means you’ll receive a $9,000 credit, which lowers your installation cost to just $21,000. That’s why it’s one of the most favorable incentives that exists for renewable energy today: a tax credit is especially valuable because it’s a dollar-for-dollar reduction of your income tax bill.
What happens if you don’t owe any taxes for the year you go solar? In this article, we’ll explain what you need to know about rolling over your solar tax credit and how to maximize your tax benefits.
Rolling over your federal solar tax credit is a straightforward process. The solar tax credit is a nonrefundable tax credit, so you need to have tax liability for the year you want to use it. If you don’t have a tax bill for the current year, you simply have to wait to carry it over until the next year in which you do owe taxes. Then you’re eligible for the federal solar tax credit.
It’s important to know that you still need to file for the solar tax credit during the year you installed your solar panels – regardless of whether you currently owe any taxes. Even if you don’t have a tax bill in 2024, if you installed your solar system in 2023, you still need to include it on this year’s return in order to claim your credit in the future.
Another thing to keep in mind is that the year your solar energy system is turned on is the tax year it counts towards, so double check your installation dates. For example, if your system was installed in December 2022, but your utility didn’t connect your solar array to the grid and give you permission to operate (PTO) until January 2023, then the year you would apply your solar tax credit is 2023, not 2022.
There's no income limit or maximum installation value for claiming the ITC, so no matter how much money you make or how much it costs to put in your system, you’re eligible for the full 30% credit.
You must have tax liability in order to claim the ITC and receive your 30% credit. That’s because if you don’t owe any taxes, by definition you can’t receive a tax credit because you don’t have an existing tax bill to reduce.
There are also strategies you can employ to create tax liability for yourself if you don’t have any, though you should consult with a licensed financial advisor or tax professional to determine your options.
For example, if you have any tax-advantaged retirement accounts such as a 401(k), Individual Retirement Account (IRA) or a Roth IRA you can employ various strategies like a Roth conversion to create some tax liability. Speaking with a financial professional will help you decide what kind of approach makes the most sense for your personal financial situation.
You can carry forward your solar tax credit for as many years as you need until 2034, which is when the ITC is scheduled to expire. If you don’t have any tax liability this year, and you don’t think you’ll have any again next year, you can still rest easy. Thanks to the Inflation Reduction Act of 2022, you have a decade to cash in on your solar credit and reap the tax benefits of adding a renewable energy source to your home.
However, the ITC is set to drop down to a 26% credit in 2033, so if you want to take full advantage of the 30% threshold, you’ll want to make sure to claim it before that.
Yes, you can claim the solar tax credit more than once as long as you’re claiming it in different years. If you install solar panels in 2023 and then you decide to install more solar panels in 2024, you can claim the 30% ITC again in 2024 because it’s a new tax year. The same goes for installing other types of clean energy equipment on your property such as heat pumps or solar water heaters.
In addition to the federal tax credit, make sure to check all of the state and local incentives available to you as well. Depending on where you live, you can receive state rebates as well as manufacturer or installer rebates.
