Federal Tax Credit For Solar and Wind Power Projects
What is the Federal Tax Credit?
The federal tax credit is a credit for investing in renewable energy such as solar and wind power. The credit reduces your federal tax liability when you file with the IRS. For example, if you get a credit of $3,000, that means you pay $3,000 less in taxes when you file that year’s return.
26% Federal Tax Credit
What types of solar electric systems qualify for the 26% Federal Tax Credit?
- ANY complete solar power package, for home or business.
- Emergency battery backup system, as long as the purchase includes at least one solar panel.
- Product purchases that expand your existing solar power system and include at least one solar panel.
- Solar System for RV and boat that has been accepted by the IRS as a second home for tax purposes.
Some facts regarding eligibility for the Federal Tax Credit:
- The home served by the system does not have to be the taxpayer’s principal residence.
- If the federal tax credit exceeds your tax liability, the excess amount may be carried forward to the succeeding taxable year.
- There is no ceiling on the tax credit.
- Applies to equipment AND installation costs.
- For Residential Renewable Energy Systems, use IRS Tax Form 5695 to report your expenses. (It can be used for any residence, not just your primary one.) Learn more about residential tax credits.
- Commercial systems have similar guidelines as residential systems but use IRS Tax Form 3468. Learn more about commercial tax credits.
- See other state, county, city and utility company rebates and incentives.
Every individual’s tax situation is different. Please consult a tax professional to make sure your situation is applicable.
Federal Tax Credits in Effect Through 2021
In December 2015, the Consolidated Appropriations Act extended the 30% credit for residential solar to the end of 2019. It then steps down over two years and expires completely at the end of 2021.
- 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.
Tax Credits For RV and Mobile Applications
The law permitting the federal tax credit is 26 USC Section 25D. It says:
(2) Qualified solar electric property expenditure:
The term “qualified solar electric property expenditure” means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer.
And the IRS definition of “dwelling unit”:
A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. It also includes all structures or other property belonging to the dwelling unit. A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities.
Finally, is an RV considered a mobile home? For that we look to this US Tax Court memo 2014-160 on Jackon & Jackson v. Commissioner, page 14:
This Court has previously held that a motor home qualifies as a dwelling unit within the meaning of section 280A(f)(1)(A).
See, e.g., Haberkorn v. Commissioner, 75 T.C. 259, 260 (1980); Dunford v. Commissioner, T.C. Memo. 2013-189, at *23-*24; Perry v. Commissioner, T.C. Memo. 1996-194, slip op. at 14.
Although we use the more modern term throughout this opinion, an RV and a motor home are one and the same thing. Petitioners and counsel used the two terms interchangeably at trial. Accordingly, petitioners’ RV is a dwelling unit for purposes of section 280A.
This information is a starting place for research only. We are not tax professionals and this does not constitute legal or financial advice. If you are uncertain, please check with a tax professional first!
Solar Tax Credit History
The Emergency Economic Stabilization Act of 2008, which was signed into law on October 1, 2008, was a boon to the renewable energy market. Not only was the 30% commercial solar investment tax credit extended through 2016, but the same tax credit was also extended to residential installations.
Under this legislation, the previous $2,000 cap for residential solar installations was eliminated. As of January 1, 2020, the purchase of a residential solar electric system makes you eligible for a tax credit equal to 26% of the cost of your solar system, including installation.
For more info, read our plain-English primer on the federal tax credit to see if you’re eligible and learn how to claim. You can also download our free Federal Tax Credit Guide for step-by-step directions on how to file for your credit with the IRS.