How to Get a Solar Tax Credit in 2021

The IRS is still offering incentives for switching to solar. Here’s how much you could save on your taxes and electricity bill.

Getting the Federal Tax Credit

With the Renewable Energy credit, you simply subtract your credit amount from the total tax the IRS says you must pay. (There’s no limit on the price of the solar system installation you choose.)

It’s different from a tax deduction, which reduces the amount of income you pay taxes on. “A $100 credit is worth $100 regardless of your tax rate,” says Kevin Martin, principal tax research analyst at H&R Block in Kansas City, Mo.

If you can’t use all of the credit in one year, you can carry it over into later years, Martin says. If, say, your federal taxes are $6,000 for 2020 and you’re eligible for a $7,000 tax credit for installing a solar system at your house, you can claim the leftover $1,000 as a credit toward your 2021 taxes.

But not every type of solar installation or expense is eligible for the tax credit. Qualified solar systems that meet IRS guidelines and produce electricity and heat water are covered. (So are small wind energy systems, geothermal heat pumps, and fuel cells.)

What Qualifies for the Solar Tax Credit

  • The entire bill for a qualified system, minus the sales tax. That includes solar panels; labor costs for on-site preparation, assembly, and installation of the system; and piping or wiring to connect the system to your house.
  • Installation of a solar system in a primary or second house.
  • Systems purchased outright or with a loan.
  • Solar roofing tiles, like those being sold by Tesla.

    Solar Shopping Tips

    Ready to take the leap and go solar? Follow this advice from the Federal Trade Commission for finding a reputable company and for ways to pay for the system.

    Vet the solar companies you’re considering. Search contractors’ names in the database of your local Better Business Bureau for complaints from other consumers. Get proof of required licenses, certificates, or insurance from each company you talk to.