Federal and State Solar Tax Credits in Phoenix, Arizona
Here we will explain how the Federal and State tax credits work when purchasing a solar system.
- Currently the Federal government provides a 26% solar tax credit called the Residential Energy Efficient Tax Credit for solar systems and roofing work related to a solar system installation.
- The Federal government also provides the Nonbusiness Energy Tax Credit which contains two parts:
- A 10% tax credit for Qualified Energy Efficient Improvements such as insulation, exterior windows and skylights, exterior doors, and metal and asphalt roofing.
- A $300 tax credit for Residential Energy Property Costs such as electric heat pump water heaters; electric heat pumps; and central air conditioners.
- The government tax credits make it more affordable for Phoenix area residents to purchase a solar system and home energy efficiency upgrades for their home.
- Here at Phoenix Solar Panel Systems we are solar experts, not tax experts. If you have questions about your taxes, please consult with your tax professional.
- The Arizona government provides a $1,000 tax credit for solar systems.
Extension of Solar Tax Credits
- In December of 2020, the government passed a massive federal spending and tax extension program that included the $900 billion dollar Coronavirus relief package.
- In this program, the government extended the solar Investment Tax Credit (ITC) at 26% of the total solar system cost through the end of 2022. To claim the tax credit, your solar system must be installed before the end of 2022.
- The ITC will lower to 22% in 2023 and will be removed completely for residential solar system projects in 2024.
What is a Tax Credit and How Does it Work?
- A tax credit is a deduction of your taxable liability to a government tax collecting agency.
- When we say there is a Federal tax credit of 26%, we mean that the government will grant you a tax credit equal to 26% of the total solar system cost.
- The tax credits only apply to homeowners that purchase their solar system through a loan or cash purchase.
- With a loan, the 26% credit applies to the total loan amount. With cash, the 26% credit applies to the total amount of cash paid up front for the system.
- For example, if a homeowner purchases a solar system that costs $20,000 to finance, the homeowner will receive $5,200 in Federal tax credits and $1,000 in Arizona tax credits, totaling $6,200 in total tax credits.
Who is Eligible for the Tax Credits?
- Those who make energy efficiency improvements to their home, like solar systems, qualify for the tax credits.
- The definition of a “home” includes a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards.
- The home where solar is installed does not have to be your main or primary home to receive the credit.
How Do I Claim My Tax Credits?
- When you file your taxes, you must also file IRS Form 5695 (found online) which is the Residential Energy Credits form.
- Form 5695 is used to claim tax credits for solar systems, heat pumps, solar water heating, small wind turbines, and fuel cells.
- Find Form 5695 and instructions on the IRS Website.
- When you have calculated the total amount of tax credits you will receive on Form 5695, enter that value into Schedule 3 (Form 1040 or 1040-SR), line 5, or Form 1040NR, line 50.
- Learn more about Form 1040 on the IRS Website.
Are There Any Other Incentives for Going Solar?
- Currently, customers with Salt River Project (SRP) as their utility will receive a rebate up to $3,600 when they purchase a Tesla Powerwall with their solar system.
- SRP also offers a $250 rebate when you install a demand management system (DMS) as part of your solar installation
If you have any questions about solar tax credits, please feel free to call us at (602) 753-0560.
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