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Which credits are included in solar tax credits?

December 8, 2021


The federal residential solar energy credit is a program that began in 2006. It allows homeowners to get a dollar-for-dollar tax credit when they install a solar energy system for their homes.

What this means for tax preparers

Tax preparers have had to take into consideration this opportunity for their clients. Homeowners who install a system between 2020 and 2022 are eligible for a current credit of 26% on the net cost of the solar energy system. Clients who installed a system before Dec. 31, 2019, were allowed a 30% tax credit.

As per the Solar Energies Industry Association (SEIA), solar has grown 42% over the past decade. Since the solar investment tax credit was instituted, our nation’s solar industry has “grown by more than 10,000%” SEIA reports.

Many advocates of clean energy point out that clean energy–such as solar–creates hundreds of thousands of jobs. These groups also note that because clean energy is not imported, like oil, it means that we are investing billions of dollars in our nation’s economy.

What is allowable and what is not

There are obvious benefits to being able to claim solar credit. Here are some other important facts:

  • Rental property owners are not eligible for this credit.
  • If a property owner resides on a portion of the property the owner may be able to claim that part of the property for the solar credit.
  • Solar rebates from the utility company are typically excluded from income taxes. Thus, they should be subtracted from the system cost before applying for the 26% credit.
  • Rebates from state governments typically do not reduce the federal tax credit.

Those who install solar panels may see a higher income reported on their federal returns because they will not be able to claim as much state income tax.

Pros and cons and cost of solar panels

While not germane to tax prep, exactly, it is good to have a general understanding of what solar is and what it costs, and the purported benefits and drawbacks, according to EnergySage.

The advantages of solar panels are that they reduce the homeowner’s electricity bill, reduce carbon emissions, and can increase the value of the home, particularly in energy-conscious communities.

The disadvantages are that panels are expensive to buy and install and require an installer who knows how to install them. Panels also do not work for every roof type or in every structural environment.

The average cost for solar panel installation in the U.S. is $12,000 after the federal incentives, according to Consumer Affairs.

Tax information