What is the Solar Tax Credit

The IRS gives you tax credits if you made energy saving improvements to your home in 2014 if it is located in the United States. The solar tax credits are in effect until 2016.

These solar tax credits apply to solar electrical systems and solar water heaters. For tax credit purposes, costs are treated as being paid when the original installation of the item is completed, or in the case of costs connected with the construction or reconstruction of your home, when your original use of the constructed or reconstructed home begins. If less than 80% of the use of an item is for non-business purposes, only that portion of the costs that are allocable to the non-business use can be used to determine the solar tax credit.

Note that this is a TAX CREDIT, not a tax deduction.

Solar Tax Credit Background
The Energy Policy Act of 2005 (H.R. 6, Sec. 1335) established a 30% tax credit up to $2,000 for the purchase and installation of residential solar electric and solar water heating property. An individual can take both a 30% credit up to the $2,000 cap for a photovoltaic ( a device that converts solar energy into electricity by the photovoltaic effect) system and a 30% credit up to a separate $2,000 cap for a solar water heating system. A 30% tax credit up to $500 per 0.5 kilowatt (kW) is also available for fuel cells. Initially scheduled to expire at the end of 2007, the tax credits were extended through December 31, 2008, by Section 206 of the Tax Relief and Health Care Act of 2006 (H.R. 6111).

Solar Tax Credit Requirements
You may be able to take a solar tax credit of 30% of your costs of qualified solar electric property, solar water heating, and fuel cell property. This includes labor costs properly allocable to the onsite preparation, assembly, or original installation of the property and for piping or wiring to interconnect such property to the home.

The solar tax credit was initially capped at $2,000 for solar energy systems, but was expanded by “The American Recovery and Reinvestment Act of 2009” to be an uncapped rebate for 30% of the cost of a renewable energy system.

Solar water heating property must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed. Note that the solar tax credit does not apply to solar water heating property for swimming pools or hot tubs.

Qualified Solar Electric Property Costs
Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in a home located in the United States and used as your home. This includes costs relating to a solar panel or other property installed as a roof or a portion of a roof.

  • There is no maximum solar tax credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • The home served by the system does not have to be the taxpayer’s principal residence

Qualified Solar Water Heating Property Costs
Qualified solar water heating property costs are costs for property to heat water for use in a home located in the United States and used as your home if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. This includes costs relating to a solar panel or other property installed as a roof or a portion of a roof.

  • There is no maximum solar tax credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
  • At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.
  • The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
  • The home served by the system does not have to be the taxpayer’s principal residence.

Qualified Small Wind Energy Property Costs
Qualified small wind energy property costs are costs for property that uses a wind turbine to generate electricity for use in connection with your home located in the United States. The home does not have to be your main home.

Qualified Fuel Cell Property Costs
Qualified fuel cell property costs are costs for qualified fuel cell property installed on or in connection with your main home located in the United States. Qualified fuel cell property is an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means.

  • The maximum solar tax credit is $500 per half kilowatt (kW).
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.
  • In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she paid.
  • The home served by the system must be the taxpayer’s principal residence.


  • For more information about the Solar Tax Credit visit the IRS website form 5695.

↓