Tax Credit for a Solar Home
- Solar tax credits are available for homeowners who install solar panels and solar water heaters. According to the U.S. Department of Energy, the amount of the credit for solar technologies is 30 percent of the cost of the improvement with no upper limit. For example, if a homeowner installed a $20,000 solar panel system, he would be eligible for a $6,000 tax credit. The credits apply to both new constructions and existing homes and both principal and secondary residences. The credits do not apply to rental properties.
- Solar panels or photovoltaic systems convert the sun's energy into electricity. According to ENERGY STAR, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy, the electricity produced by solar panel systems must be used by the residence to qualify for credits. In addition, a solar panel system must comply with all required fire and electrical codes.
- Solar-powered water heaters use the sun's energy to heat water, but they come in several different designs and may use other sources of energy to assist in the heating process. According to ENERGY STAR, at least half of the energy used to heat water must come from the sun for a solar-powered heater to qualify for the tax credit. Credits are not available for heaters used to heat swimming pools or hot tubs.
- The U.S. Department of Energy states that tax credits on solar energy are set to expire on December 31, 2016. The tax credits are nonrefundable, meaning a taxpayer cannot get a tax refund if a credit exceeds his total tax liability. ENERGY STAR says that the solar tax credits can be carried forward to future tax years. For example, if a homeowner has $5,000 in tax liability and is eligible for a $6,000 solar energy credit, the credit reduces her tax liability to zero and she can use the remaining $1,000 credit on her tax return for the next year.
