Solar Tax Credit: Can You Receive a Tax Credit for Renewable Energy?

Making your home more energy-efficient takes time, money, and hard work. You deserve to pat yourself on the back for making an earth-conscious choice—whether you're adding insulation, installing solar panels, or even replacing light bulbs. Now, you can reap the benefits, like a lower utility bill and a more comfortable home. Did you know you may qualify for tax savings with a solar tax credit?

It’s true: tax incentives like the federal solar tax credit are available to homeowners who make qualifying upgrades to their primary residences. However, it’s essential to stay up to date with this financial benefit, as these credits tend to expire every few years, and there’s no guarantee of extensions or renewals.

If you're thinking about upgrading your home to harness solar energy or another renewable energy for the maximum financial advantages, now's the time to act. Let's learn more about the current state of energy tax credits in 2022.

Tax Credits for Solar and Other Renewable Energy Products: Available Through 2023

The Renewable Energy Tax Credit, commonly known as the solar tax credit, applies to homeowners who install systems that rely on renewable energy sources. Although it’s often called a solar panel tax credit, it covers more than solar panels—other qualifying products include solar water heaters, geothermal energy, fuel cells, wind power, and biomass fuel systems.

Depending on the energy technology you use, certain limitations may apply. For example, fuel cell energy is subject to a $500 cap for each half kilowatt of your property’s capacity. To get complete details on allowable expenditures and stipulations that must be under the terms of this program, visit the ENERGY STAR website.

How much is the solar tax credit for 2022?

How many years can you claim the solar tax credit? In 2021, Congress voted to extend the federal solar tax credit through December 31, 2023. These credits gradually decrease in value, depending on the date the system was placed in service. Here’s how much you can deduct from the cost of installation:

• 30% for equipment installed between 01/01/2017 and 12/31/2019

• 26% for equipment installed between 01/01/2020 and 12/31/2022

• 22% for equipment installed between 01/01/2023 and 12/31/2023

If you are unsure whether you qualify, visit the ENERGY STAR website or hire a professional to conduct a comprehensive home energy audit.

How does the solar tax credit work?

The Residential Renewable Energy Tax Credit covers new construction along with pre-existing homes. It also covers the cost of labor associated with installation and equipment outlays, including any wiring, plumbing, or ductwork installed to get your home's new energy system up and running.

Biomass fuel stoves are a new addition to the credit beginning in 2021. If you’re looking to claim a credit for installing a biomass heating system, such as a wood or pellet stove, remember that it depends on the date the system is placed in service, which must be between 2021 and 2023. For example, if you purchased a qualifying product in 2020 but didn’t get it installed until 2021, you should claim it on your 2021 tax return.

Does everyone get the solar tax credit?

The Internal Revenue Service (IRS) issues energy credits, which you must claim by submitting Form 5695 along with the appropriate tax returns. For more information, visit the IRS website.

Tax Credits for Residential Energy Efficiency: Currently Expired

2022 Update: The residential tax credit for energy efficiency expired on December 31, 2021, meaning improvements made after that date are no longer eligible. The future of the Residential Energy Efficiency Tax Credit is currently unknown, and any renewal depends on a new bill by Congress. We will update this page once any new legislation is approved.

When it was in effect, the Residential Energy Efficiency Tax Credit applied to home improvements and energy-efficient home appliances purchases. The overall goal of this incentive was to reward homeowners who had made significant efforts to avoid the dreaded summer and winter utility spikes by reducing their HVAC energy consumption.

Specifically, this program covered energy-efficient home products like insulation, roofs, windows, and doors, plus the installation of energy-efficient heating, cooling, and water-heating equipment.

How did the tax credit for energy efficiency work?

The Residential Energy Efficiency Tax Credit applied only to pre-existing structures and did not cover new construction. You may have been eligible for this credit if you replaced or made an addition to your home's insulation, installed new exterior doors or energy-efficient windows, or installed a metal or asphalt roof designed to mitigate your home's heat gain. The lifetime credit limit was $500 during the taxable years of 2018, 2019, 2020, and 2021.

The tax credit did not cover labor costs. All improvements were required to meet the standards set by the 2009 International Energy Conservation Code, and all actual equipment had to adhere to the 6.0 ENERGY STAR program requirements.

State and Local Incentives

Remember, not all your tax dollars go straight to Uncle Sam; you also pay state and local taxes. In addition to the federal solar tax credit, you may be entitled to other forms of tax relief, like state-sponsored solar tax credits. You could even take advantage of state and local tax credits for energy-efficient home improvements like purchasing an electric vehicle or installing an energy-efficient pool pump. 

Visit the Database of State Incentives for Renewables & Efficiency® to access all energy-related tax credits, rebates, and savings in your region. Simply choose your home state from the drop-down list or enter your zip code to uncover energy-efficiency savings.

Even your utility providers may offer premiums for using energy more conscientiously. Many energy companies provide renewable energy certificates or rebates to multiply your savings.

Final Thoughts

Don't miss out on these valuable government programs, like the federal solar tax credit and statewide tax relief, by claiming the full benefits of making smart, sustainable energy choices. 

Before you file your tax return, look back through your receipts. Did you save the ENERGY STAR information that came with new appliances? Do you have documentation of when any applicable home improvements were installed or completed by contractors? Tracking these documents down will help you claim renewable energy credits. 

Even when tax credits come and go, American Home Shield is always by your side. When you become a member, you can have peace of mind that your budget and energy-efficient appliances and home systems are protected. View our pricing and plans today.

Disclaimer: This solar tax credit information is available only for informational purposes. Sources include ENERGY STAR, Internal Revenue Service, and the Database of State Incentives for Renewables & Efficiency®. AHS assumes no responsibility, and specifically disclaims all liability, for your use of any and all information contained herein. We encourage you to consult a tax expert or contact the IRS directly.