Solar Tax Credit on your mind?
Well, that’s great but do you know how to get solar tax benefits in California. If no, then you’re reading the right article. For those who don’t know, let’s first figure out what solar tax credit is and how are Californians benefitted through the same.
Commonly coined as the ‘Investment Tax Credit’ or ITC, this tax benefit is an initiative of the federal government to promote the use of solar power across the country. Under this, homeowners who are considering solar get a tax deduction of 30% (dollar-for-dollar) on the total solar system cost.
While tax incentives make the solar energy systems quite affordable to homeowners, the latter can actually do away with high electricity bills outside their reach. Moreover, 30% is just one of many incentives that cut down the overall price of solar for homeowners.
There is a wide array of digital platforms that keep you updated on the residential ITC value, but knowing how to actually claim Solar Tax
Credit at tax time is altogether a different story. Let’s walk you through the process quickly.
Know the Eligibility CriteriaObvious it may sound obvious but first you need to know if you are eligible for the tax incentive. That being said, eligibility criteria boil down to four things:
•You own the solar system and it’s not on lease
•If on lease, only special cases get the tax benefits linked with SRECs or Sale of Solar Renewable Energy Certificates
•You live in the house for that part of the year you claim the solar tax credit for.
•You carry over the balance credit to coming year if your Federal Tax Liability is less than your Total ITC Savings
How to claim Solar Tax Credit?
In California, claiming the solar tax credit is quite hassle-free. All you need is to fill and submit the Form 5695 or “Residential Energy Credit” and introduce the concluding form result on IRS Form 1040.
a) Completing the Form 5695
From solar panels, small wind generators, geothermal heat pumps, fuel cells to solar water heating, this form totes up tax benefits for a good assortment of certified residential solar energy developments.
Start-off by knowing the total gross cost of solar system after deducting all cash rebates.
If any, fill in the total cost of added energy upgrades.
In case you’re not getting a tax incentive on fuel cells and not carrying any remaining credits to the following year, let the value remain the same. Now, calculate if you have adequate tax liability to receive the entire 30% tax credit annually.
Fill in all the details on the form to compute the tax credit limit you can claim. Information like adoption costs, mortgage interest, first-home purchase, plug-in hybrid purchase and electric vehicle purchase needs to be provided in case you are claiming tax incentives for the same.
After arriving at the value, you’ll know if your tax liability is less than tax incentives and you get the final tax credit you can claim on next year.
b) Adding Tax Credit to Form 1040
Fill in the residential energy efficient property credit on Form 1040.
Please note that the steps stated above only guide you to available 30% tax deduction on your solar system. In case you’ve done some energy efficient upgrades to your house during the same year, don’t forget to complete other details mentioned on Form 5695.
Either way, including Form 5695 is the best bet to claim solar tax credit in California and you should certainly do it!
Have you already gone solar? Contact us through the form below, or call 1-877-245-4672, for a free estimate from Energy Remodeling.
TAX ADVICE DISCLAIMER: Any federal tax advice contained in this blog was not intended or written to be used, and it may not be used, for the purpose of avoiding any penalty that may be imposed by the Internal Revenue Service. No guarantees are offered that the advice provided will be applicable to your specific situation. You should always consult with a qualified tax expert.