Can I Rollover My Unused Solar Tax Credit?

The Residential Clean Energy Credit program offers many credits, one of which is the solar tax credit. This non-refundable federal tax credit is designed to encourage the installation and utilization of residential solar panels. The Residential Clean Energy Credit program helps the U.S. solar sector create hundreds of thousands of jobs and develop exponentially by encouraging the installation of solar panels.

The solar tax credit can partially offset equipment costs, such as those for the solar panels and their installation, but it does not apply to expenses for structural work or improvements needed to place panels on, say, a new roof. You are eligible to deduct a portion of the cost of your solar system for that particular tax year, provided that it services a residence located within the United States.

Solar Tax Credit aims to provide homeowners with the financial assistance that they need to invest in solar panel systems. The following costs may be partially covered by the solar tax credit if you choose to install a solar panel system in your home:

Solar PV Panels or PV Cells: The solar tax credit normally covers the cost of solar photovoltaic (PV) panels or cells, which generate energy from the sun. These covers purchasing and installing PV panels or cells, as well as any mounting components.

Labor Costs: In addition to the cost of supplies, labor charges spent during installation are eligible for the solar tax credit. This covers on-site solar panel preparation, assembly, and installation. This category may also include a permit, inspection, and developer fees.

Balance-of-System Equipment: The solar tax credit covers crucial components including wiring, inverters, and mounting equipment. These components are essential for the effective operation of the solar panel system and so eligible for tax credit coverage.

Energy Storage Devices: Solar batteries and other energy storage devices that are used to store excess power produced by a solar panel system are eligible for the solar tax credit for homeowners. Energy storage devices need to have a minimum capacity of 3 kilowatt-hours to be eligible for the tax credit.

Sales Taxes: Finally, the solar tax credit may pay relevant sales taxes on qualified expenses. This includes sales tax on materials, labor, and any qualifying expenses incurred during the solar panel system installation.

It is important to remember that the solar tax credit is subject to specific restrictions and qualifying requirements. Homeowners should seek the advice of a tax professional or financial advisor to verify that all standards are met and that possible tax savings are maximized. By taking advantage of the solar tax credit, households may save money on the costs of switching to solar energy, making it a more accessible and affordable choice for sustainable energy generation.

Rolling over your federal solar tax credit is an easy process. The solar tax credit is nonrefundable, so you must have tax liability in the year you use it. If you do not have a tax bill for the current year, you must simply roll it over to the following year, when you will owe taxes. Then you qualify for the federal solar tax credit.

Regardless of whether you owe any taxes at the moment, it's crucial to understand that you must still submit for the solar tax credit during the year that you installed your solar panels. Even if you didn't get a tax bill in 2024, if you installed your solar panel system in 2023, you must include it on this year's return to claim your credit in the future.

Another thing to remember is that the year your solar energy system is turned on determines the tax year it qualifies for, so it's important to check your installation dates. For instance, if your solar system was installed in March 2022 but your utility did not connect your solar to the grid and grant you permission to operate (PTO) until January 2023, you could take advantage of your solar tax credit in 2023 rather than 2022.

There is no income restriction or maximum installation value for claiming the ITC, so regardless of how much money you make or how much it costs to install your system, you are entitled for the full 30% credit.

There has to be a tax liability in order for you to be eligible for the Investment Tax Credit (ITC) and your 30% credit. Thus, if you have no outstanding taxes, you will not be eligible for the tax credit as there is no tax liability to deduct.

However, if you do not already have any tax liability, there are ways available to assist you create one. To fully explore your alternatives, you should consult with a qualified financial advisor or tax specialist.

For instance, if you have tax-advantaged retirement accounts like a 401(k), Individual Retirement Account (IRA), or a Roth IRA, there are various strategies, such as a Roth conversion, that can help generate some tax liability. Consulting with a financial professional will enable you to determine the most suitable approach based on your individual financial circumstances.

You can carry over your solar tax credit for as many years as needed until 2034, when the ITC expires. If you don't have any tax due this year and don't expect to have any next year, you can still relax. The Inflation Reduction Act of 2022 gives you a decade to use your solar credit and realize the tax benefits of installing a renewable energy source in your house.

However, the ITC is due to reduce to a 26% credit in 2033, so if you want to take full benefit of the 30% level, you must claim it before then.

It is possible to claim the solar tax credit more than once, provided that the claims are made in separate years. Since 2024 is a new tax year, if you install solar panels in 2023 and then elect to install additional in 2024, you are eligible to claim the 30% ITC once again. The same holds true for adding solar water heaters or heat pumps, among other clean energy technologies, to your property. 

Check any state and municipal incentives that are available to you in addition to the federal tax credit. State rebates as well as manufacturer or installation rebates may be available to you, depending on where you live.