How does the IRS verify solar credit? It is a question that many people have, and with good reason – the federal solar tax credit is a significant savings opportunity for those who are considering moving to renewable energy. Installing solar energy can provide significant savings to you, but you have to understand solar energy and how to obtain a solar panel system, as well as how the credit applies before you consider this offer.
At SmartSolar, we offer insight and support for our clients considering a solar energy system who want to lower their tax liability. Contact us today to learn more about how a tax credit could help you and how the IRS verifies the solar credits you take.
What to Know About the Federal Tax Credit for Residential Solar Energy
The federal solar tax credit is a way to reduce your tax liability – the amount of money you pay to the Internal Revenue Service (IRS) each year at tax time – by a considerable amount.
The government wants people to work to lower their carbon footprint, and one way to do that is to encourage them to invest in solar panel systems. Tax credits are an incentive to help people afford the transition to solar energy.
How much is the solar tax credit?
If you are thinking about investing in a solar panel system and having a residential energy-efficient property, it is wise to speak to a tax professional about the actual savings you will qualify for since there are some differences here.
The current tax credit, according to the U.S. Department of Energy, is matched dollar-for-dollar. That means if you claim a $1,000 solar energy tax credit, your tax liability drops by $1,000. This renewable energy savings can help you to get credit for up to 30% of the total cost of installing solar panels on your home.
The amount you can claim in a tax credit depends on when you have solar panels installed.
- If you installed solar panels on your home in 2020 or 2021, you could get qualified for a credit of up to 26% for the cost of the equipment.
- If you installed a solar panel system in 2022 through 2032, you qualify for up to a 30% tax credit on the equipment costs.
- For those that install solar panels in 2033, that drops to 26%.
- The tax credit for 2034 is 22%, though these solar tax incentives could change over time with new laws.
So, now that you know how the residential energy credit works to lower your federal tax liability, the question remains, how does the IRS really know you've installed a solar panel system on your home?
Solar Incentives Can be Verified
If you claim this tax deduction on your federal taxes, be sure you have the resources to back it up. For example, if you show on your tax return for 2022 that you have installed a solar system and your federal tax returns take the tax credit, you will need to have receipts to back that up.
If you are audited later, and you claim the solar tax but do not have the receipts to verify this, you could pay significant fines for reporting your income tax inaccurately.
What Else You Should Know About Residential Energy Credits
Be sure you qualify for the federal tax credits before you take them. Here are some additional factors to keep in mind. Be sure to monitor the Inflation Reduction Act and other laws as they change over time.
Does your home qualify for federal tax credits for solar?
It may qualify if you are installing an energy-saving solar power system. Most types of homes will qualify, including:
- Traditional single-family homes
- Mobile homes
- Cooperative apartments
- Manufacturing homes that meet all Federal Manufactured Home Construction and Safety Standards
What can you claim as the cost for a solar panel?
You can obtain tax savings for the cost of qualified equipment. That means you can list solar-powered units that generate electricity or that heat water. Beginning in 2023, the solar power equipment you purchase must have at least 3 kilowatt hours of capacity or more.
In addition to this, you may be able to claim solar power labor costs as well as some of the solar installation costs.
Can you take the federal tax credit if you lease solar equipment?
You cannot claim the solar tax credit if you do not purchase the solar systems outright. That means if you are leasing your solar panel system instead of buying it, you cannot claim it on your tax return.
That is one of the reasons to have a solar panel system installed on your qualifying property instead and paying for it outright.
Also note that there may be other eligibility requirements to meet.
What About State Tax Credits?
Some state tax credits exist as well. While the most significant solar tax credit is the federal refundable tax credit that you will report on Form 5695, state tax credits may exist as well. You will want to look into any local programs that can work alongside the federal solar power credits, as this can help to further reduce your costs.
Get Your Solar Panel System Installed Today
If you have taxable income and you want to invest in solar power, now is the time to do so. You can reduce your federal taxes through these solar incentives while also working to support the environment while you do so.
Our team can help you. Reach out to SmartSolar today to learn more about how to get a solar system, the costs involved, and how you can qualify for federal tax credits that could end up saving you a substantial amount of money.
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