What Is the 2024 Federal Solar Tax Credit?

The Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC), provides an up to 30% tax credit for the costs of adopting solar energy in the United States. The credit applies to new solar photovoltaic (PV) systems and expansions of existing ones, reducing the overall installation cost by nearly a third. This credit not only supports environmental sustainability but also offers generous financial benefits, contributing to the growing adoption of solar energy across the country.

If you’re looking for assistance with this tax credit or any others, a financial advisor may be able to help you optimize your tax strategy. 

What Is the 2024 Federal Solar Tax Credit?

The 2024 Federal Solar Tax Credit, officially known as the Investment Tax Credit (ITC), is a financial incentive for adopting solar energy in the United States. This dollar-for-dollar credit allows homeowners and businesses to deduct up to 30% of the cost of installing a solar energy system from their federal taxes. By reducing the upfront cost of solar installations, the solar investment tax credit makes renewable energy more accessible and affordable.

The up to 30% solar investment tax credit is set to remain in place through 2032 following a recent extension of the ITC, providing a long-term incentive for adopting solar energy. After 2032, the credit is scheduled to decrease gradually. This extended timeline gives homeowners and businesses more time to plan and implement solar projects, but the planned decrease of the credit amount incentivizes early action.

How to Qualify for the Tax Credit

This credit applies to both residential and commercial properties, allowing a wide range of property owners to benefit from the incentive. Eligible systems include solar photovoltaic (PV) systems, which convert sunlight into electricity.

To qualify, the solar energy system must be installed and operational within the 2024 calendar year. The credit covers a comprehensive array of expenses related to the installation, including the cost of: 

• Solar panels
• Inverters
• Racking
• Wiring
• Other necessary equipment
• On-site preparation
• Assembly
• Installation
• Permitting, inspection and developer fees
• Energy storage devices
• Sales tax on eligible expenses

Qualifying for the 2024 solar investment tax credit also involves several key criteria:

1. Completion Date: The solar energy system must be completed and operational in 2024. Projects that are still under construction or planned for future years do not qualify for the 2024 credit.
2. Property Type: The credit is available for both residential and commercial properties. This includes primary residences, secondary homes and businesses. However, it does not apply to rental properties that the taxpayer doesn’t live in or homes used solely for business purposes.
3. Ownership: To claim the credit, the taxpayer must own the solar energy system. Leasing a system or entering a power purchase agreement (PPA) does not qualify for the ITC. The owner of the system can claim the credit, whether they paid for it upfront or financed the purchase.

How to Claim the Tax Credit

Claiming the 2024 solar investment tax credit is a straightforward process, primarily involving filing your federal tax return. Here are the steps:

1. IRS Form 5695: Complete IRS Form 5695, Residential Energy Credits, to calculate the amount of your solar tax credit. This form requires information about the costs associated with your solar installation.
2. Calculating the credit: On Form 5695, you will enter the total cost of your solar energy system. The form guides you through the calculation to determine 30% of this cost, which is the amount of your tax credit.
3. Transfer to Form 1040: The calculated credit from Form 5695 is then transferred to your IRS Form 1040, which is your primary tax return form. This credit directly reduces the amount of federal taxes you owe.
4. Documentation: Keep detailed records and receipts of all costs associated with your solar installation. This includes invoices from contractors, receipts for equipment purchases and any other relevant documentation. You don’t need to submit these with your tax return, but keep them in case of an audit.

Benefits of the 2024 Federal Solar Tax Credit

The 2024 Federal Solar Tax Credit, or Investment Tax Credit (ITC), provides both personal and environmental benefits, making it a compelling option for both homeowners and businesses. Personal Financial Benefits 

The 30% tax credit effectively lowers the overall expense of adopting solar technology, making solar energy more affordable and accessible to a wider range of property owners. Installing solar panels can also lead to substantial long-term savings on energy bills. By generating your own electricity, you can reduce or even eliminate your reliance on the grid, leading to lower monthly utility costs. In some cases, homeowners can even sell excess electricity back to the grid, creating an additional income stream. 

Increase in Property Value

Investing in solar energy can increase the value of your property. Studies show that homes equipped with solar energy systems tend to sell at higher prices compared to those without. Buyers are increasingly valuing energy efficiency and sustainability, making solar-equipped homes more attractive in the real estate market. This increase in property value can provide an additional financial incentive for homeowners to invest in solar energy.

Environmental Benefits

Solar energy is a clean, renewable resource that produces far fewer greenhouse gas emissions compared to fossil fuels. By transitioning to solar power, homeowners and businesses can help mitigate climate change and reduce their carbon footprint.

Using solar energy instead of fossil fuels also reduces air pollution, which can have a direct positive impact on public health. Traditional energy sources, such as coal and natural gas, release harmful pollutants into the air, contributing to respiratory problems and other health issues. By reducing reliance on these sources, solar energy helps improve air quality and public health.

Bottom Line

The 2024 Federal Solar Tax Credit allows homeowners and businesses to invest in solar energy and save money along the way. By providing substantial financial incentives, the solar investment tax credit reduces the upfront costs of solar installations. The benefits extend beyond immediate financial savings, contributing to increased property value, long-term energy cost reductions and environmental advantages. This incentive not only supports individual property owners in their transition to renewable energy but also plays a vital role in stimulating the renewable energy industry. 

Tips for Tax Planning

• A financial advisor can help you plan your overall tax strategy, including any tax credits you may be eligible for. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Tax credits can significantly reduce the amount you owe Uncle Sam, so don’t overlook any 2024 tax credits you may be eligible for. Check out this guide to 2024 tax credits to make sure you don’t miss any.

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