30% solar tax credit under threat from Trump administration?
Nobody knows for sure if Donald Trump will repeal the 30% solar tax credit but what we do know is that it is available now and you should get your solar panels installed while this remains the case.
What is the federal solar tax credit?
A law, extended by the legislature in December 2015 that allows a taxpayer claim a credit of 30% of qualified expenditures for a solar system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer.
Expenditures with respect to the equipment are treated as made when the installation is completed.
Eligible expenditure include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. Put simply this means that generally the entire value of your quote from a solar company to install solar panels is eligible for the tax credit.
Is there a $ limit of the solar tax credit?
There is no limit on the $ value of the federal solar tax credit.
What if I don't owe as much in taxes at the end of the year as 30% of the value of my system?
The federal tax credit is a credit and not a rebate meaning you must have enough tax liability to get full use of the credit.
However, the federal tax credit exceeds your tax liability in the year of installation, the excess amount may be carried forward to the succeeding taxable year.
Some people are concerned that because they have tax withheld from their pay by their employer over the course of the year, and so have no additional tax liability due at the end of the year that they may not be able to use the credit. This is not the case, where you have paid tax in installments during the year then the value of the tax credit would be issued as a refund.
How do I claim the solar tax credit?
To claim the 30% solar tax credit you simply complete a Form 5695 and add the results of this to your main tax return.
How to complete Form 5695
Form 5695 calculates tax credits for a variety of qualified residential energy improvements. You only need to worry about line 1 being the line for solar electricity. Insert the total cost of your solar panels system, including installation into line 1.
|1||Qualified solar electric property costs||1||$20,000|
|2||Qualified solar water heating property costs||2||0|
|3||Qualified small wind energy heating property costs||3||0|
|4||Qualified geothermal heat pump property costs||4||0|
|5||Add lines 1 through 4||5||$20,000|
|6||Multiply line 5 by 30% (.30)||6||$6,000|
Now you need to calculate if you will have enough tax liability to get the full 30% credit in one year.
- Complete the worksheet on page 4 of the instructions for Form 5695 to calculate the limit on tax credits you can claim. If you are claiming tax credits for adoption expenses, interest on a mortgage, buying a home for the first time, or buying a plug-in hybrid or electric vehicle, you will need that information here. (For this example, total federal tax liability is $7,000.)
Residential Energy Efficient Property Credit Limit Worksheet - Line 14
|1||Enter the amount from Form 1040, line 47, or Form 1040NR, line 45||1||$7,000|
|2||Enter the total, if any, of your credits from Form 1040, lines 48 through 51, and Schedule R, line 22; or Form 1040NR, lines 46 through 48||2||0|
|3||Enter the amount, if any, from Form 5695, line 30||3||0|
|4||Enter the amount, if any, from line 12 of the Line 11 Worksheet in Pub. 972 if you are claiming the child tax credit||4||0|
|5||Enter the amount, if any, from Form 8396, line 9||5||0|
|6||Enter the amount, if any, from Form 8396, line 16||6||0|
|7||Enter the amount, if any, from Form 8859, line 3||7||0|
|8||Enter the amount, if any, from Form 8910, line 15||8||0|
|9||Enter the amount, if any, from Form 8936, line 23||9||0|
|10||Add lines 2 through 9||10||0|
|11||Subtract line 10 from line 1. Also enter this amount on Form 5695, line 14. If zero or less, enter-0-on Form 5695, lines 14 and 15||11||$7,000|
- 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. That's the amount you can claim on next year's taxes.
|13||Add lines 6, 11 and 12||13||$6,000|
|14||Limitation based on tax liability. Enter the amount from the Residential Enery Efficient Property Credit Limit Worksheet (see instructions)||14||$7,000|
|15||Redidential energy efficient property credit. Enter the smaller of line 13 or 14. Also include this amount on Form 1040, line 53, or Form 1040NR, line 50||15||$6,000|
|16||Credit carryfoward to 2015. If line 15 is less than line 13, subtract line 15 from line 13||16||0|
Add credit to Form 1040
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).
|53||Residential energy credits. Attach Form 5695||53||$7,000|
The steps above outline all you need to do to have 30% of the cost of your solar panel system credited back to you! If you did energy efficiency improvements to your home in the same year, you may also need to complete page 2 of Form 5695. Either way, be sure to include Form 5695 when you submit your taxes to the IRS.
How long does the 30% federal solar tax credit last?
In relation to solar electricity the following rates of tax credit apply:
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
- There is no maximum credit for systems placed in service after 2008.
- Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
- The home served by the system does not have to be the taxpayer's principal residence.