So you’ve installed your new solar panel system, and now you want to do your federal solar tax credit filing. But taxes can be confusing, and you’re not entirely sure how to proceed. No worries! Sunpro Solar is here to help guide you through it. The federal solar tax credit filing isn’t too difficult when you know what to look for.
Please keep in mind, however, that we are not tax consultants. We do not give tax advice, we are merely offering a guide on what filling would look like with a fictitious example. Please consult a tax consultant before filing.
Before you begin the process of your federal solar tax credit filing, there are a few things to keep in mind.
- If your solar panels are leased to you through a third party, you are not eligible for this tax credit. The federal solar tax credit is available only for those who have purchased their solar panels outright, or with a solar loan.
- You are only eligible for the federal solar tax credit in 2018 if your solar panels were installed and operating during that year by December 31st. If you signed the contract in 2018, but they weren’t installed until 2019, you’ll have to wait until 2019 to claim your tax credit.
- If you received rebates or grants when installing your solar panels, you calculate the total cost AFTER applying them, as rebates are meant to reduce your total cost. For example, if your solar panels cost you a total of $20,000, but your utility company offered you a rebate of $2,000, your total cost would be $18,000, which is the number you would use in your taxes.
- If you have a state tax credit for solar panels, in addition to the federal solar tax credit, you don’t need to do any extra math for your federal solar tax credit filing. State and federal tax credits are both calculated based on the total amount you paid.
Once you have all the above figured out, there a few things you will need to complete your federal solar tax credit filing. You will need your solar installation receipts, the IRS Form 1040 for 2018, the IRS Form 5695 for 2018, and a calculator. When you have all these materials, you can get started on Form 1040. Prepare it as your normally would until you get to line 53. Then switch to Form 5695.
Line 1 in the form is for Qualified solar electric property costs. You will enter the total cost for your solar panel system in that line. The total cost includes the cost of installation. Continue the instructions on the form to Line 5.
Lines 2 through 4 are for other renewable energy systems. If you have also installed those, you can enter those amounts. However, for the sake of this guide we will be discussing only solar panels.
On Line 5, you will add up the total amount from Lines 1 through 4. Continue to Line 6.
For Line 6, you will multiply the number from Line 5 by 30%, or 0.30. As an example, let’s say that number was $30,000. You would multiply that by 0.30, which comes to $9,000.
If applicable to you, fill in Lines 7 through 12. Otherwise, skip to Line 13.
In Line 13, add the total amount of credit from Lines 6, 11, and 12. If you did not need to fill Lines 7 through 12, simply put the number from Line 6 here. Again using the example from above, it would be $9,000.
Line 14 comes with a worksheet, titled the Residential Energy Efficient Property Credit Limit Worksheet. Follow the instructions on that worksheet from Line 1 to Line 10.
On Line 11 of the Worksheet, you will subtract the number on Line 10 from Line 1. The amount on Line 11 of the Worksheet form is what you will put on Line 14 of Form 5695.
On Line 15 of Form 5695, you will enter the smaller number of Lines 13 and 14. For example, if Line 13 had 9,000 listed, and Line 14 had 4,500 listed, you would put 4,500 on this line.
For Line 16, look at Lines 13 and 15. If the number in Line 15 is less than the number in Line 13, subtract Line 15 from Line 13. If Line 13 had 9,000 and Line 15 had 4,500, you would subtract 4,500 from 9,000, which would equal 4,500. You would put that number in Line 16.
The number in Line 16, if the line is filled, is any carryover tax credit you may have from your solar panels. That amount of credit is rolled over to the next tax year when it can be used again.
We’ll use a fictional example to show what all this will look like step by step- let’s call the person filling Mr. Jones.
- Mr. Jones purchased and installed a solar panel system in 2018, and the total cost was $30,000.
- He puts 30,000 in Line 1 on Form 5695.
- Lines 2 through 4 don’t apply to him, so he leaves those blank.
- On Line 5, he puts 30,000.
- For Line 6, he multiplies 30,000 by 30%, or 0.30, which equals 9,000. So he puts 9,000 on Line 6.
- Lines 7 through 12 don’t apply to him, so he skips them.
- On Line 13, he adds Lines 6, 11, and 12, but only Line 6 was filled, which is 9,000. So Line 13 is 9,000.
- On Line 14, he goes through the worksheet and comes up with the number 4,500, which is what he puts on Line 14.
- On Line 15, he puts 4,500 again, because it was the smaller number of Line 13 and Line 14. Line 16 also has 4,500.
So in total, Mr. Jones claimed $9,000 in tax credits, and $4,500 of that was used to pay for his taxes that year. The other $4,500 is rolled over for the next year, where he can again use it to help cover his taxes.
If you have any questions or concerns while doing this, please contact your tax consultant. They will help you with not just your federal solar tax filing, but with the rest of your taxes as well.