SOLAR SOLUTIONs

As per the Inflation Reduction Act of 2022,  a federal solar tax credit for 30% of the cost of the solar system is potentially available. Tax credits are claimed when you file taxes from the previous year. If you made a solar investment that was approved by the government in that previous year, you would be able to deduct that amount when you file your taxes with the government. All products that are eligible for tax credits for residential energy efficiency are labeled with an Energy Star certification.

New Jersey has always been one of the best states for solar: higher-than-average electricity rates and strong solar incentives have helped thousands of New Jerseyans achieve quick payback periods on their solar investments. The state’s renewable portfolio standard and associated solar renewable energy certificate (SREC2) market have been instrumental in growing solar throughout the state. 

A solar energy credit, also known as a solar investment tax credit, is different from a tax rebate or deduction. Unlike a rebate, which provides a direct refund, a credit reduces the amount of taxes you owe on your tax return. If you owe little or no federal taxes, there will be little or nothing to offset, meaning you won’t be able to benefit from the credit fully.

To claim your solar energy credit, you need to fill out IRS Form 5695 when filing your taxes and include your renewable energy credit details on your regular Form 1040. Most popular tax filing software automatically includes this credit. If you’re using an accountant or tax preparer, be sure to inform them that you installed solar.

Additionally, if the amount of taxes you owe is at least equal to the value of your credit, you can use the credit to reduce your tax liability and potentially receive a refund for any remaining amount. If you don’t owe the full amount in the first year, you can carry over the unused portion of the credit to offset taxes in future years, as long as the ITC remains available.

To be eligible for the full 26% federal solar ITC, you need to meet the following criteria:

• The 26% credit is available through December 31, 2022, and will decrease to 22% from January 1 to December 31, 2023. Check with your tax advisor for more details.
• You must be the homeowner, as renters are not eligible.
• You must own the solar panels; you cannot claim the credit if you lease a system.
• You need to pay enough federal taxes to qualify for the full 26% credit, since it's a tax credit, not a rebate.
• Starting in 2024, the residential credit will drop to zero under the current legislation.

*Please consult your tax advisor to obtain all IRS details.