The $7 Billion Reason to Go Solar in 2024
Tax season is a drag — unless you recently installed solar.
This year, US homeowners are expected to claim an estimated $7 billion in tax credits for the solar systems they installed in 2023. (And that doesn’t even include tax credits for home batteries!)
The federal solar tax credit is worth 30% of the installed cost of a residential solar system, with no maximum amount. So, whether you spend ten thousand or fifty thousand on a solar system, Uncle Sam is offering to eat 30% of the cost.
This tax credit was extended through 2032 with the passage of the Inflation Reduction Act (IRA). However, this incentive can — and almost certainly will — be repealed in early 2025 if a new administration takes the White House.
That would make 2024 the last year to qualify for this tax credit and a very good year to go solar.
$7 billion in solar tax credits for 2023
A record 7,000 Megawatts (MW) of residential solar capacity was installed in 2023, according to data from Wood Mackenzie. To break that down, the average home solar system has roughly 7 kilowatts of capacity. So, 7,000 MW is an average-sized system on 100,000 homes.
Wood Mackenzie also reports the average cost of a solar system in 2023 was $3.42 cents per watt (1 MW = 1,000,000 watts). At that price point, Americans spent a combined $23.9 billion on residential solar in 2023 — making them eligible for a total of $7.2 billion in federal income tax breaks.
In early 2024, these new solar owners are claiming their tax break and enjoying their first full year of generating their own clean electricity.
Will 2024 be the last year to qualify for the solar tax credit?
There’s a reasonable chance that 2024 is the last year for homeowners to install a solar system that qualifies for the 30% federal tax credit. It depends on how that 2024 general election pans out.
Political opinions aside, it’s a matter of fact that former President Donald Trump has vowed to repeal clean energy tax credits if he is re-elected in 2024. This presumably includes the tax credits and rebates for solar, batteries, EVs, EV chargers, and a wide range of home electrification upgrades.
In this scenario, US homeowners would still have all of 2024 to install systems that qualify for this incentive before the Trump administration takes over in 2025.
However, given the average solar project timeline of 3-4 months, waiting for election results in November may not leave enough time to install a system before the end of the year — especially if there is a rush to claim the credit before it expires.
The safe bet is to start a project early in 2024 to ensure eligibility. Plus, it’s a good idea to have your solar system up and running before your high summer electricity bills kick in.
Claiming the solar tax credit
The federal solar tax credit is claimed on IRS Form 5695 for the tax year the system was installed. We have a detailed walk-through here, but please consult a licensed tax professional with questions about your personal tax situation.
The credit is worth 30% of your total project cost after rebates and discounts are applied. So, if your out-of-pocket cost was $25,000, you can claim a $7,500 tax credit for the year it was “deemed operational” (i.e., installed and passed inspection).
Here are some things to keep in mind:
- This incentive is not a check that simply comes in the mail — it’s a non-refundable tax credit.
- As a non-refundable credit, the solar tax credit is used to reduce your tax liability (i.e., your taxable income) to increase your refund or reduce the amount of tax you owe.
- It must be claimed on the tax return for the year the system was installed and passed inspection. (You can’t install it in 2023 and wait until your 2025 tax return to claim it)
- If the tax credit amount is greater than your tax liability for the year, you can carry the leftover credit forward to future tax years
In many cases, claiming the credit is simply following the instructions on Form 5695. But if you’re unsure consult a licensed tax advisor with questions about claiming this credit.
The bottom line
The 30% tax credit is a great incentive that boosts the cost savings of solar and undoubtedly played a role in the record number of systems installed in 2023.
This incentive is scheduled to remain until 2032. However, there is a reasonable chance that 2024 could be the last year to install a system that qualifies for his tax credit.
Start your solar project today to ensure eligibility for the 30% solar tax credit.
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