How-to File My Solar Federal Tax Credit (FTC)

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    The Solar Federal Tax Credit (FTC)

    Good news for solar, the Inflation Reduction Act of 2022 increased the Federal Tax Credit (FTC) for solar, batteries, and other renewables from 26% to 30% while also extending it until 2032. This means that you can receive a 1 to 1 tax credit for 30% of your out of pocket cost of your solar system. In this article we’ll provide an example of how to calculate the Federal Tax Credit when combined with other incentives and explain how to file the paperwork to receive the savings.

    Note: Industry geeks often refer to the Federal Tax Credit (FTC) by its real name the Investment Tax Credit (ITC). For the sake of simplicity, we’ll be using the more common name used by most people; the Federal Tax Credit (FTC). Just know that the two terms are synonymous.

    FTC Example

    The Federal Tax Credit (FTC) provides a 30% tax credit on your out of pocket cost of your solar and/or battery system. The key term there is the “out of pocket” cost. For example, if your solar system costs $40,000, however the company that you’re working with provides a discount of $1,000, your out of pocket cost is only $39,000. Furthermore, if you receive state incentives like the Energy Trust of Oregon (ETO) or Oregon Department of Energy (ODOE) solar incentives, those would also decrease your out of pocket cost.

    Looking at all of those factors together, here’s a very common FTC calculation:

    Solar System Cost $40,000
    Installer Promotional Discount $1,000
    ETO Incentives $400
    ODOE Incentives $1,600
    Total Incentives & Discounts $3,000
    Out of Pocket Cost $37,000
    30% Federal Tax Credit $11,100
    Net System Cost $25,900

    Notice that the 30% FTC is calculated off of the out of pocket cost of $37,000, not the system cost of $40,000.

    The other key component of the FTC is that you must have that amount of tax liability to fully take advantage of the credit. For example, if you only owe $7,000 in taxes before the credit, you’ll receive that full amount, but nothing more. The remaining $4,100 will be carried over to the next tax year, where hopefully you can take full advantage of it.

    FTC Timetable

    Here’s a look at the previous 26% FTC level and what to expect going forward:

    Year Residential Commercial
    2021 to 2022 26% 26%
    2023 to 2032 30% 30%
    2033 26% 26%
    2034 22% 22%
    2035 + 0% 0%

    FTC for W2 Employees

    If you’re a W2 employee and your employer withholds your taxes for you, you would receive a refund check for the tax credit as long as you withheld that much in taxes. However, going with the example above, if you only withheld $7,000 in taxes for that tax year, you’d receive a refund check for only that amount. The remaining $4,100 would roll over to the next year. The incentive is not a cash refund, it can only be applied against actual federal tax liability.

    How to File for the Federal Tax Credit (FTC)

    To receive the Federal Tax Credit (FTC), you must file IRS Form 5695 when you do your taxes. The easiest thing to do is to simply provide all paid invoices for the solar system to your CPA. They will in turn fill out IRS Form 5695 for you.

    Keep in mind that the value you’re looking for is the out of pocket cost of the solar system. This is the cost after any state or local incentives have been applied. Utility and government rebates that are applied to the sale price pre-invoice do not qualify.

    Businesses can also claim the FTC. In addition, they can be eligible for the Modified Accelerated Cost Recovery System on solar energy equipment.

    When determining which costs associated with your solar system qualify for the credit, you’ll need to consult your CPA. The calculation can get tricky when things like electrical or structural upgrades are required in order to install your solar system. A tax professional will be able to answer those questions for you.

    Online tax filing software, such as TurboTax, have easy-to-use interfaces that make it easy to apply for the FTC. All you need to do is enter the amount stated on the invoice.

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