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Disclaimer: Before you read this guidance through, please keep in mind that tax matters can be highly individualized and complex. EcoFlow does not provide any assurances or guarantees concerning potential tax credits that may be associated with our products. Any information we provide here in this guidance is solely for educational purposes and shall not be construed as legal advice. We recommend you rely on the expertise of tax professionals for accurate and personalized tax advice.
The Residential Clean Energy Credit — also known as the Federal Solar Tax Credit — offers an enormous financial incentive to US income taxpayers to install solar panels and clean energy systems to generate renewable electricity.
Up to 30% of your solar energy system and photovoltaic panel purchase and installation costs could be covered by Uncle Sam.
Given that the substantial upfront investment in purchasing and installing a residential solar energy system is the primary barrier to entry preventing homeowners from enjoying all the benefits of solar, the tax break’s impact is enormous.
Are you thinking about making the switch to solar but don’t know how to apply for the Federal Solar Tax Credit?
Or do you have questions about your eligibility?
It’s simpler than you think…
Read on to find out.
What Is The 30% Solar Tax Credit?
The Federal Solar Tax Credit — now known as the Residential Clean Energy Credit — is a significant financial incentive available to US income taxpayers investing in solar panels for their primary or secondary residence.
If you qualify, you’ll get a tax credit for 30% of the total cost of your solar setup, including PV panels, balance of system, and installation.
Additionally, there’s no cap on how much you can spend.
It’s easy to see why homeowners are rushing to claim this benefit and invest in solar panels.
After all, you could save $7,500 on a $25,000 system or $15,000 on a $50,000 system!
It certainly makes switching to solar an even more attractive investment. By reducing your costs by up to 30%, you’ll achieve solar payback much quicker — and start actually making money by generating your own electricity.
So, what exactly is a tax credit, and how does it work?
What Is a Tax Credit?
A tax credit allows you to subtract a specified amount of money from what you owe in taxes.
Governments often use tax credits to incentivize certain behaviors. Aside from Clear Residential Energy Credit, other popular federal tax incentives include:
- Earned Income Tax Credit
- Savers Tax Credit
- Child and Dependent Care Credit
Aside from encouraging people to take actions like switching to solar, tax credits are also often designed to reduce the liability of lower-income individuals and families.
Governments also offer tax incentives to corporations to help fund projects considered to be in the public interest. For example, there are also Federal Solar Tax Credits for Businesses.
It’s crucial to note that a tax credit is not the same as a tax deduction. It’s also not the same as a tax rebate. Here are the differences:
- A Tax Credit is subtracted directly from the amount of income tax you owe. If you owe $20,000 in income tax and receive a tax credit of $5,000, your income tax liability is reduced to $15,000.
- A Tax Deduction reduces your taxable income. If your taxable income is $100,000 and you take a tax deduction of $20,000, your taxable income is reduced to $80,000. But that doesn’t mean you save $20,000. The amount of money you’ll actually save depends on numerous factors like your income tax rate, your marital status, etc. Tax deductions are usually taken for eligible expenses.
- A Tax Rebate is a refund of taxes that you’ve already paid. Tax rebates are relatively rare in the US and are usually used by state or federal governments in a similar way to tax credits. For example, California has offered a hybrid car credit to incentivize people to buy vehicles that burn less gas. It’s also occasionally used in times of economic crisis to stimulate spending, such as the Recovery Rebate Credit of 2008.
What is a Tax Liability?
Government spending is funded through taxes on people, property, corporations, etc.
Every year, most American workers must calculate their total income and assess how much tax they owe. Many taxpayers will receive a W-2 (if your employer withholds income tax) or a 1099 form (if you’re an independent contractor).
The amount you need to pay in taxes is called your tax liability. There are many different kinds of tax liability, for example, federal and state income taxes or property tax due on your home.
Because the Residential Clean Energy Credit applies only to federal income tax liabilities, that’s what we’ll be focusing on here.
If you’re like most American taxpayers, your federal income tax liability is primarily based on how much money you earn.
However, your actual income tax liability depends on a huge variety of factors, like eligible deductions, marital status, and adjustments (like student loan payments, retirement plan contributions, etc.)
There’s a reason many Americans dread tax day — typically around April 15th — and why they hire accountants to determine their tax liability.
Of course, you can always do your income taxes the old-fashioned way with a calculator and pencil or a software solution like TurboTax.
However you decide to complete your tax returns, it’s in your best interest to take advantage of all the deductions and tax credits available to you.
How Does the 30% Solar Tax Credit Work?
The Federal Solar Tax Credit (Residential Clean Energy Credit) can reduce the amount of federal income tax you owe by up to 30% of the total cost of your solar panels, balance of system, and installation.
|Activation Year||Credit Percentage|
The percentage of your tax credit can vary based on numerous factors, such as when your system was installed and activated.
If you installed an eligible residential solar power system in 2006 or later and haven’t claimed the tax credit, it’s not too late to claim it now. Unfortunately, if your system was installed in 2005 or earlier, you’re not eligible for tax relief under this program.
If you’re wondering why 17-year-old solar systems qualify, that’s because the Federal Solar Tax Credit isn’t actually new.
A virtually identical program offering a 30% tax credit called the Solar Investment Tax Credit was available for residential solar power systems from 2006 – 2019. In 2020 – 2021, the ITC was reduced to 26%.
The Inflation Reduction Act of 2022 reinstated and renamed the program the Federal Solar Tax Credit (now known as the Clean Residential Energy Credit) and raised the credit back up to 30%
The Residential Clean Energy Credit is non-refundable. That means that if your credit exceeds your federal income tax liability, you won’t get a check for the difference.
However, you can roll over any leftover credit to future tax years.
Eligibility for the Residential Clean Energy Credit
For a residential solar power system purchased between January 1, 2022, and December 31, 2032, to be eligible for the credit, the following requirements must be met.
- Activation must occur between January 1, 2022, and December 31, 2032. It’s essential to note that your system must be turned on and operational during the tax year you claim the credit. If you purchase and install solar panels in December 2023, but the system isn’t active until January 2024, you’ll need to wait until the 2024 tax year to make your claim.
- The solar PV system must be located at your primary or secondary residence in the United States.
- If you live in an RV or boat, you may be eligible to claim the credit
- The system must be new or being installed and used for the first time
- You must own the system; the solar tax credit doesn’t apply to leased or rented equipment
- If you purchase the system and panels with financing directly from a manufacturer like EcoFlow, you should still qualify for the credit if you’re contractually obligated to pay for the system in full
- You cannot claim the solar tax credit if you’re a renter whose landlord has installed (and paid for) the system. However, if you’re a tenant-stockholder in a co-op or member of a condominium, you may be able to claim the amount you contribute to a community-owned solar power system
As long as you meet the eligibility criteria above, you should receive the full 30% solar tax credit.
What Type of Solar Panels and Generators Are Eligible for the 30% Tax Credit?
According to the IRS, the following types of systems are eligible for the
Residential Clean Energy Credit.
- Solar (Photovoltaic panels or other modules, balance of system, and installation costs)
- Solar water heaters
- Wind turbines
- Geothermal heat pumps
- Fuel cells
- Battery storage technology (above 3Kwh capacity)
For new residential solar power systems, the following expenses can be claimed:
- Cost of solar panels
- Labor costs for installation, including permitting fees, inspection costs, and developer fees
- Any additional solar equipment, like inverters, charge controllers, wiring, and mounting hardware
- Energy storage systems rated three kilowatt-hours (kWh) or greater (starting in 2023).
- Sales taxes on eligible expenses
Besides the minimum requirement for solar battery storage size (3kWh), there are no minimum — or maximum — system requirements for the above expenses.
That means you can deduct 30% of the cost of one — or 100 — solar panels used at your primary residence from your income tax liability for the year the system is operational.
There are no minimum requirements for how much electricity is generated.
However, for an off-grid solar electricity solution, you’ll need a solar battery or portable power station in addition to other balance of system components like:
- Charge controller
- Battery management system
Even for grid-tied solar power systems, having a solar battery provides additional energy security during a blackout.
For your solar battery to qualify for the Residential Clean Energy Credit, it must have a minimum storage capacity of 3kWh.
Here are two examples of off-grid residential solar power systems eligible for the 30% solar tax credit.
Entry Level Whole-House Backup for Blackouts: Whole Home Generator Solution
By integrating the DELTA Pro ecosystem with your existing home wiring using the Smart Home Panel, you can ensure uninterrupted electricity during a power outage for energy security.
Additionally, you can significantly reduce (or eliminate) your utility bills.
Even if the Whole Home Generator doesn’t produce sufficient electricity to meet all of your consumption needs, it can save you a significant amount of money on your electricity bills.
With the EcoFlow smartphone app, you can schedule your Whole Home Generator to operate from electricity produced during peak sunlight instead of on-grid during peak billing hours. If necessary, you can switch back to on-grid electricity during off-peak billing periods.
With a maxed-out Whole Home Solar generator, you can achieve the following production and storage of off-grid electricity:
- 7.2kW AC Output (14,400 starting watts/surge power)
- 25kWh of Storage Capacity (using DELTA Pro Smart Extra Batteries)
- 3,200W maximum Solar Charge Input (8 x EcoFlow 400W Rigid Solar Panels)
30% of the entire equipment and installation costs of the above system are eligible for the Residential Clean Energy Credit — reducing your investment by 30%.
Whole-House Off-Grid Solar Generator for Extended Power Outages: DELTA Pro Ultra
The new DELTA Pro Ultra changes the off-grid solar power game.
Maxed out, the DELTA Pro Ultra off-grid solar generator provides the following…
- 21.6kW AC Output
- 90kWh of Battery Storage Capacity
- 16.8kW of Solar Charging Input (42 x EcoFlow 400W Rigid Solar Panels)
The latest in EcoFlow’s award-winning lineup of off-grid solar power solutions provides sufficient AC output to run all your high-wattage home appliances and systems (like HVAC).
With up to 90kWh of Storage Capacity, you can keep your house running even during the most extended outages.
Best of all?
You can save 30% of the entire cost of your DELTA Pro Ultra solar generator system under the Federal Solar Tax Credit…
But how do you apply?
How to Apply for the 30% Federal Solar Tax Credit
If you do your own taxes, it’s easy to get intimidated by claiming tax credits and deductions. No one likes filling out extra forms and potentially inviting IRS scrutiny of their tax returns.
The good news is that if you meet all the eligibility requirements — and you owe income taxes — the Residential Clean Energy Credit is extraordinarily easy to claim.
Here’s how to do it…
How to Claim the 30% Solar Tax Credit If You File Your Own Taxes
If you’re like most American taxpayers, you file income taxes using IRS Form 1040. If you’re subject to tax withholding from your employer, that’s almost always the correct form to use.
If you’re an independent contractor not subject to tax withholding, you’ll most likely file taxes with IRS Form 1040-ES.
Either way, the process of claiming the 30% solar tax credit is painless.
If you’re claiming a tax credit for a solar power system installed after 2022, you’ll need to complete IRS form 5695.
Insert the total installation, purchase, and sales tax costs of your residential power system on line 1 of form 5695.
If you’ve made additional investments in eligible renewable energy sources, add them to the following fields.
Once you’ve totaled up all eligible costs, multiply by 0.30 (30%).
The resulting figure is the dollar amount of your Residential Clear Energy Credit.
For example, if you spent $50,000 on a DELTA Pro Ultra system with solar panels and an additional $8,000 on solar water heating, your calculation would be as follows:
$50,000 + $8,000 = $58,000 (Combined expenses eligible for the credit)
$58,000 x 30% = $17,400 (Residential Clean Energy Credit net total)
On a $58,000 total investment in eligible clean energy, you would save nearly $20K against your federal income tax liability.
If you owe less than $17,500 in federal income taxes (or none at all), you can roll over the additional credit to the following tax year(s).
Because the Residential Clean Energy Credit is “non-refundable,” you won’t receive a check from the IRS for any eligible credit in excess of your tax liability for the year. But you can apply it against your liability in subsequent tax years until your credit is received in full.
How to Claim the 30% Solar Tax Credit Using TurboTax
In 2022, 44 million American taxpayers used TurboTax to file their returns. If you use Intuit’s popular software to do your taxes, claiming the 30% solar tax credit couldn’t be simpler.
TurboTax automatically searches over 350 deductions and credits to ensure you don’t miss out on any opportunities to reduce your tax liability.
In addition to automatically filing Form 5695 if you’re eligible, TurboTax will also ask if you’ve made any other Energy Efficient Home Improvements eligible for a tax credit under the Inflation Reduction Act.
How to Claim the 30% Solar Tax Credit If You Use an Accountant to File Your Taxes
Aside from convenience, the primary reason people pay a financial professional like a chartered accountant to file their taxes is their familiarity with the tax code. It’s their job to ensure your filing is complete and accurate — and that you take advantage of any legitimate tax credits and deductions.
Simply inform your tax professional that you’ve purchased, installed, and activated an eligible residential solar power system in the relevant tax year. If you want to play it safe, consult your accountant before making the purchase — just to ensure eligibility.
Any experienced accountant or tax preparer will be aware of the Residential Clean Energy Credit. They’ll let you know what paperwork you need to provide and file Form 5695 on your behalf.
It’s certainly not necessary to hire a tax professional to complete your returns to claim the 30% solar tax credit. But if you’re already using a tax preparer, it makes it even easier to do.
Can the Solar Tax Credit Be Combined With Other Solar Incentives?
Yes. The Residential Clean Energy Credit imposes no limit on what other credits or incentives you can claim for your solar investment.
Do your own research or consult your tax professional to ensure you get all the benefits you qualify for.
If you’re making renovations to your home to reduce power consumption, there’s another new program you need to be aware of.
What Is the Energy Efficient Home Improvement Credit?
In addition to the 30% Residential Clean Energy Credit, the Inflation Reduction Act offers a tax credit for homeowners seeking to make their residences more energy efficient.
The Energy Efficient Home Improvement Credit covers numerous renovations and purchases that help your residence consume less electricity or fossil fuels for heating, etc.
Examples of expenses that may qualify for the credit include:
- Exterior doors, windows, skylights, and insulation materials
- Central air conditioners, water heaters, furnaces, boilers and heat pumps
- Biomass stoves and boilers
- Home energy audits
Find out what additional credits you may be eligible for on the IRS page for the Energy Efficient Home Improvement Credit.
Frequently Asked Questions
Yes. There is no limit to how many times you can claim the Residential Clean Energy Credit. For example, if you buy five solar panels in 2024 and decide to buy five additional PV panels in 2025, you can claim 30% of the cost in each tax year. You can claim a credit for all eligible purchases and expenses until the program expires in 2034, but the credit’s percentage amount starts decreasing in 2032.
The Residential Clean Energy Credit is non-refundable. If you don’t owe any federal income taxes, there’s no liability to which the IRS can apply the credit. You won’t receive a check from the government if you’re eligible for the credit but don’t owe taxes. However, you can apply the credit to income tax liabilities in subsequent years.
The Residential Clean Energy Credit is non-refundable. If you’re eligible for a credit in excess of your federal income tax liability, you won’t receive any additional tax refund. For example, if you owe $10,000 in income tax but are eligible for a $15,000 credit, you’ll pay no federal income tax that year. You can roll over the remaining $5,000 and apply it against your liability the following year.
No, there is no minimum spending requirement for the Residential Clean Energy Credit. As long as the equipment and any associated costs are eligible for the credit, you can claim them. However, there are some limitations on what types of systems are eligible. For example, solar battery storage must have a minimum of 3kWh capacity to qualify for the credit.
No, there is no limit to the dollar amount of qualified purchases and installation costs you can claim against your federal income tax liability with the Residential Clean Energy Credit. However, the credit is “non-refundable,” meaning you won’t receive a refund if your credit exceeds your income tax liability. You can apply any leftover credit to your income tax liability in subsequent years.
The Residential Clean Energy Credit offers taxpayers a significant incentive to switch to solar to meet some or all of their home electricity consumption needs.
A 30% credit against your federal income tax liability effectively lowers the cost of purchasing and installing solar panels and balance of system components by ⅓.
By making renewable energy more affordable, the Inflation Reduction Act makes the benefits of solar power more accessible to homeowners across the USA.
When you embrace solar power for your home, you’ll not only save money on utility bills — and make money in the long run — but you’re also investing in the future of our planet.
Transitioning to residential solar energy is an essential step in moving America away from greenhouse gas-emitting fossil fuels and meeting our net zero goals.