Federal Incentive Tax Credit

Installing home solar may qualify you for a Federal Incentive Tax Credit up to 26% of the total cost of your solar system. This credit is available through the end of 2020.  After that, the percentage steps down each year until it expires at the end of 2021. As a credit, you take the amount directly off your federal tax payment, rather than as a reduction to taxable income. Other than the cost of the system, including installation, there’s no limit to the dollar amount of this credit.

Qualifying systems include solar systems that generate home electricity. This credit is only available for improvements made to primary and secondary homes you own.  You cannot claim a credit for installing solar power at a rental property you own; provided, however, there is an exception if you live at the rental property for part of the year. You will be required to reduce the credit to reflect the time you’re not there.  For example, if you live in your rental home for three months a year, you can only claim 25% of the credit.

You must file IRS Form 5695 as part of your tax return to claim this credit.  You calculate the credit on form 5695, and then enter the result on your form 1040.  If you end up with a bigger credit than you have income tax due, you cannot use the credit to get money back from the IRS.  Instead, you can carry the unused credit over to the following tax year. Carryover amounts may expire after the solar credit expires.

 
 

Federal Incentive Tax Credit

Installing home solar may qualify you for a Federal Incentive Tax Credit up to 26% of the total cost of your solar system. This credit is available through the end of 2020.  After that, the percentage steps down each year until it expires at the end of 2021. As a credit, you take the amount directly off your federal tax payment, rather than as a reduction to taxable income. Other than the cost of the system, including installation, there’s no limit to the dollar amount of this credit.

Qualifying systems include solar systems that generate home electricity. This credit is only available for improvements made to primary and secondary homes you own.  You cannot claim a credit for installing solar power at a rental property you own; provided, however, there is an exception if you live at the rental property for part of the year. You will be required to reduce the credit to reflect the time you’re not there.  For example, if you live in your rental home for three months a year, you can only claim 25% of the credit.

You must file IRS Form 5695 as part of your tax return to claim this credit.  You calculate the credit on form 5695, and then enter the result on your form 1040.  If you end up with a bigger credit than you have income tax due, you cannot use the credit to get money back from the IRS.  Instead, you can carry the unused credit over to the following tax year. Carryover amounts may expire after the solar credit expires.

 

Arizona Incentive Tax Credit

Installing a solar energy system in your Arizona home may qualify you for an Arizona Incentive Tax Credit equal to 25% of your total system cost.  The maximum credit in a taxable year cannot exceed $1,000, and the cumulative solar credits allowed for the same home cannot exceed $1,000. The maximum credit a taxpayer may take for solar energy devices installed in the same home cannot exceed $1,000 in the aggregate.

A taxpayer may claim the credit of up to $1,000 for a second home, but the maximum credit claimed for primary and secondary homes in a taxable year is $1,000.  A taxpayer is not eligible for the credit on rental homes. If the allowable credit exceeds the taxes otherwise due, the taxpayer may carryover the credit for a period not to exceed five years.

An Arizona Incentive Tax Credit for installing solar systems generally does not reduce the Federal Incentive Tax Credit, and vice versa.  If you receive an Arizona Incentive Tax Credit, the income you report on your federal tax return will be higher, because you now have less state income tax to deduct.  You must complete Arizona Forms 301 and 310 to file a claim for this credit.

Other Incentives

Other incentives for the purchase of residential solar may be available from your electric utility provider and others.  Your AZ Sun Services Sales Advisor can assist you in the discovery of available incentives. Please note, incentives may be taxable and/or may reduce the amount of any federal or state tax credits.
 
 

Other Incentives

Other incentives for the purchase of residential solar may be available from your electric utility provider and others.  Your AZ Sun Services Sales Advisor can assist you in the discovery of available incentives. Please note, incentives may be taxable and/or may reduce the amount of any federal or state tax credits.

DISCLAIMER:

This Incentive Tax Credit overview does not constitute professional advice. You should consult professional advisors when making a solar purchase, which requires investment, tax, and contract decisions.

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