Can I Rollover My Unused Solar Tax Credit?

It may be difficult to determine what you can and cannot claim on your taxes, and understanding how to claim the federal solar tax credit is no exception. One of the most important elements in determining whether you are qualified to claim the solar tax credit is whether or not you owe any taxes this year. If you do not have a tax bill, you cannot claim a credit. That does not mean you will be unable to claim your solar investment tax credit (ITC), but it does imply that the timetable for doing so has changed.

Installing solar panels doesn't have to cost thousands of dollars because you can claim 30% of the system cost as a tax credit when you submit your taxes thanks to the federal solar tax credit. A $9,000 credit will be applied to your solar panel installation cost, bringing it down to just $21,000 if the panels are installed for $30,000. Due to the fact that a tax credit reduces your income tax liability dollar for dollar, it is one of the best incentives for renewable energy available today.

However, what will happen if you switch to solar power in a year when you have no outstanding taxes? We will cover all the information you require to optimize your tax benefits and roll over your solar tax credit in this post.

Understanding the Federal 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.

How Does the Federal Solar Tax Credit Work?

The solar tax credit allows you to claim a part of the cost of installing a solar power system to lower your federal income tax liability. There is no financial limit to the amount you can claim, but you will not receive a tax refund if your qualifying amount exceeds your tax due.

For example, if you want to claim $1,500 for your solar tax credit but only have $1,000 in your tax liability, your liability will be computed at $0 rather than a refund of $500.  However, you can still carry your unused solar tax credits forward for the next year to reduce your tax bill. The Inflation Reduction Act states that the solar panel credit is 30% for 2023 taxes and will stay that way through 2032.

Depending on the credit percentage for the year you installed and turned on your solar system, you can claim the following real cost:

Solar Panel System Installation Year	Credit Amount
2022-2032	30%
2033	26%
2034	22%

What Are Covered by the Solar Tax Credit?

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.

Eligibility for Federal Solar Tax Credit

To qualify for a solar tax credit, you must meet all of the following criteria:

• Your solar PV system was installed between January 2006 and December 2023.
• The solar PV system is situated at your home in the United States. It may be a house, a houseboat, or a mobile home.
• You own the solar PV system and acquired it with cash or finance, and you are not leasing the system or paying a solar company to purchase produced power; OR
• You acquired an interest in an off-site community solar project, and the generated power is credited against your home's electricity.
• The solar PV system is used or is being used for the first time—the solar tax credit can only be claimed for initial installation.

If your residence is primarily used for residential purposes and less than 20% for business activities, you can claim the full solar tax credit. However, if your home serves as both a residence and a place of business, and business use exceeds 20%, the credit must be prorated accordingly.

How Does the Federal Solar Tax Credit Rollover Work?

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.

Can You Claim the Solar Tax Credit If You Don’t Owe Taxes?

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.

How Many Years Can I Roll Over My Solar Tax Credit?

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.

Can You Claim the Solar Tax Credit More Than Once?

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.

Don’t Miss Out on Tax Savings—Go Solar Now!

Ready to go solar? Don't wait any longer to claim your tax credit. Forme Solar is here to help you make the most of the solar tax credit in 2024. As California's premier solar installation company, we bring over 7 years of experience serving local homeowners.

Our knowledgeable team is here to address all your questions about solar incentives in California and ensure you maximize your savings on your solar installation. Don't miss out on significant savings with the 30% federal solar tax credit! Call us at 1-714-694-2262 or contact us to schedule a free consultation today.

Frequently Asked Questions About the Solar Tax Credit

How do I claim my solar tax credit from the IRS?

When filing your federal income tax return, you must include the solar tax credit on IRS form 5695.

The claim for this benefit needs to be made during the tax year in which the city inspection determined that your system was functioning. You can carry over any excess amount to subsequent tax years if your tax burden is less than the credit's value.

Does the solar tax credit apply to battery storage?

Yes. In addition to solar electric costs, the Residential Clean Energy Credit covers battery storage. Similarly, it applies to solar water heating, small wind, geothermal heat pump, and biomass fuel projects.

According to the Inflation Reduction Act, the Residential Clean Energy credit applies to standalone battery storage systems larger than 3 kWh installed after January 1, 2023.

Is the solar tax credit refundable?

No, the solar tax credit is not refundable, thus it may only be used to offset your tax bill.

This applies only if the value of the tax credit exceeds your tax liability. With a refundable credit, any excess credit is reimbursed. With a non-refundable credit, any excess credit can be carried forward or "rolled over" to future tax years.

Will I get the solar tax credit if I don’t owe taxes?

The solar tax credit is non-refundable and may only be used to lower your tax liability. As a result, if you don't owe any taxes, you may be unable to claim the credit.

If you do not have enough income to generate tax liability and wish to claim this credit, you should speak with a registered tax practitioner before signing a solar contract to explore taxation solutions.

However, even if you are unable to receive the solar tax credit, solar may still deliver energy cost reductions, particularly over time. The tax credit is typically the cherry on top of a solar savings sundae, rather than the dish itself.

How many years can you carry forward the solar credit?

The solar tax credit can be carried forward for as long as it is in existence, which is presently scheduled until 2034.

The Inflation Reduction Act, signed in August 2022, increased the credit value to 30% for the period 2022-2032. The tax credit declined to 26% in 2023 and 22% in 2034 before disappearing entirely for homeowners.

While that appears to be a long timescale, it is open to change if the Inflation Reduction Act is repealed or altered.

Can the solar tax credit be combined with other incentives?

Yes, the solar tax credit may be used with state, municipal, and utility incentives to minimize the total cost of solar and battery systems. However, keep in mind that the solar tax credit is only worth 30% of your solar/battery costs. So, claiming a refund that lowers the cost of the system, even retroactively, diminishes the credit's worth.