Federal Tax Credits for Installing Qualified Solar Electric Systems

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The federal Residential Energy Efficient Property credit allows for a tax credit on the installation of residential solar electric and solar water heating systems.

As of November 2021, the credit is 26% of the cost for systems put in place during 2021 and 2022 and 22% of the cost if installed in 2023. Currently, the credit expires after December 31, 2023, but that could be changed by legislation. Previously (2019) the credit was 30%.

The tax credit is claimed on federal Form 5695 “Residential Energy Credits.” If the amount of the credit exceeds your tax liability in the year your claim the credit, the excess of the credit gets carried forward to the following tax year. You can continue carrying forward the credit until you use it - there is no expiration.

The state of California does not have a corresponding solar energy credit.

Keep in mind that the tax credit is available only if you purchase the system. You cannot receive the credit if you lease your system. You can certainly finance the purchase of your system, however.

The cost of the system that you claim for tax credit can include the cost of a battery, as long as 100% of its power is derived from your solar system.

Can you include the cost of a new roof as part of your system? Generally no. The roof is not part of the system, unless you are installing solar roofing tiles or solar roofing shingles - those actually do qualify for the credit.

Learn more about Residential Energy Credits on Form 5695 at www.irs.gov/pub/irs-pdf/i5695.pdf or on the Energy.gov website at www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics.