What Is The Federal Solar Tax Credit For 2022?: A Step By Step Guide

Whether you've had a solar system for years or are just now thinking about making the switch to solar, it's hard to keep up with every incentive, tax credit, and initiative there is out there. If there is one tax credit you should utilize before the end of this year, though, it's the federal solar tax credit. 

What Is the Federal Solar Tax Credit?

The first step in ensuring that you take advantage of the federal solar tax credit for 2022 is to understand it. The federal solar tax credit (2022) is a tax credit that you can claim on your federal tax return. This tax credit is not valued at any set amount; instead, it's a percentage of what you spend installing a residential solar system. The tax credit is currently 26% of your total system cost.

Tax credits can help you reduce the amount of money you owe the government in taxes. For example, if you decide to claim a tax credit worth $6,000, the gross amount you owe the government in income taxes will be reduced by $6,000. It's important to remember that this isn't a tax deduction, which would reduce your taxable income rather than your total tax liability.

How Does This Tax Credit Work?

Let's say your solar system was quoted at $30,000. A 26% credit would save you $7,800 on your tax returns. The tax credit rolls over every year, just in case the taxes you owe equal less than the credit you earn.

Any U.S. homeowner can claim the federal solar tax credit in 2022, so long as the installed solar system is for a residential location in the United States. This household doesn't have to be your primary residence, but it still needs to be in the U.S. and qualify as a residential building. 

The system has to be installed and in service (to be more specific, it must be on and generating power) during the designated tax year. So, if you install and begin using your residential solar system during 2022, you can claim the credit on your 2022 tax filing. If you start a solar panel installation at the end of 2022 but don't turn the system on until a month in 2023, you'll instead have to claim the credit on your 2023 filing.

Why Now?

As of the beginning of this year, this solar incentive is going to slowly fade out, which means its value is essentially decreasing each day. Unless Congress renews the solar tax credit through some other kind of legislation, it will not be available to homeowners after 2023.

Here's a table that shows what is currently planned for the future of the solar tax credit:

Are You Eligible?

For you to claim the federal solar tax credit and get a return on your solar investment, you need to meet the following criteria when filing your taxes for 2021:

• Your solar P.V. system must have been installed and in operation at some point between January 1, 2006, and December 31, 2021.
• Your system has to have been installed at either your primary or secondary residence.
• You must own the solar P.V. system, whether you paid for it all at once or are utilizing some sort of financing. If you're leasing your solar system, you won't be eligible to claim the tax credit.
• The solar system has to have been used at least once. You only get to claim the solar tax credit once for your solar P.V. equipment's "original installation." So if you move from one home to another, take your panels with you, and install them onto your new roof. You won't be able to claim a second credit.