With the federal solar tax credit getting extended in 2020, it’s never been a better time to save on your annual taxes with your solar panels. But even those who are aware of the solar tax credit often don’t know how to file them.
So how do you claim tax credit for your solar panels? What are the steps toward claiming your solar tax credit?
That’s what we’re here to look at today. Read on to find out more about how you can claim your solar tax credits.
First, Are You Eligible?
This might seem rather innocuous, but it’s never a bad thing to check whether your home is actually eligible to claim the solar tax credit. This mostly pertains to those who don’t directly own their solar panels.
Many loan their solar panels to enjoy the benefits of solar without spending too much money on the outset. For these individuals, however, the federal solar tax credit is unfortunately not available.
Outside of that caveat, most people remain eligible to claim solar tax credits. Even if your tax liability is lower than the total tax credit amount, you can still claim it.
For example, if your liability is about $5,000 but you’re eligible for $6,000 worth of solar tax credits, you can still claim it. In fact, leftover amounts can be carried over to the following year.
Step 1: Entering Energy Efficiency Property Costs
The first main step in claiming your solar tax credit is getting your 5695 form out to calculate the value of your tax credit. The 5695 is designed to calculate all your residential energy improvements, including solar.
First, figure out your solar electric property costs. This is the gross cost of your solar panels after any cash rebates are taken out.
Put this in line 1, then note any energy improvements you made in your home in the next few lines. Add them all up in line 6a, then multiply that value by .26.
This reflects the 26% solar tax incentive. Once you have the tax credit amount, you can move on to step 2.
Step 2: Determining Tax Liability
In this step, you’ll need to determine whether the tax credit you found in step 1 can be fully claimed in one year. To do this, you’ll need to complete sections 1 through 18 on your 1040 form.
Now back to the 5695, you have to note anything else you’ll be claiming tax credits for, such as mortgages, adoption services, or an electric vehicle. Add that up and subtract from your tax liability.
Step 3: Calculating Total Tax Credit
Once you determine what you’re being taxed, all you need to do is subtract your solar tax credit from your tax liability. You might get a negative number which means your liability is lesser than your credit.
Whatever that leftover amount is can be claimed for next year’s taxes. If you’re in any way confused about how to calculate or claim your solar tax credit, make sure to contact Blue Raven.
Understanding How to Claim Tax Credit
The solar tax credit is tremendously beneficial for homeowners with solar panels but might be a little confusing to navigate at first. Use this guide to help you understand how to claim tax credits on your solar panels today!
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