Federal Solar Energy Tax Credit

A house with solar panels on its roof.
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Under the general umbrella known as the residential renewable energy tax credit, consumers can save on federal taxes on home solar equipment through Dec. 31, 2016. Both solar-electric and solar water-heating properties are eligible for the credit. These are not deductions but rather one-to-one subtractions from a taxpayer's overall tax bill.

Solar Tax Credit

Homeowners are able to claim a federal tax credit for solar energy systems that serve a U.S. dwelling that is owned and lived in by the taxpayer. The amount is 30 percent of qualified expenditures, such as labor costs, piping and wiring and installation of assembled or original systems. When determining expenditures, the government uses the "placed in service" date as the day the owner moves in. There is no maximum credit for systems placed after 2008, and the home served may be the primary residence or a second home, as long as it isn't a rental.

Eligible Solar Energy Systems

Both solar panels and heaters may be eligible for the federal credit, but to qualify, the different systems also have their own requirements. Photovoltaic systems, or solar panels, must produce electricity for the residence and meet electrical and fire codes. For solar water heaters, a minimum of half of the energy generated by the equipment must come from the sun. The water must also serve the dwelling, and swimming pools or hot tubs are excluded. Moreover, the system must be certified by an approved organization, such as the Solar Rating and Certification Corporation.

Applying for the Credit

To apply for the solar tax credit, taxpayers must first fill out Form 5695 for solar products that were placed in service in the year stated on the tax form. On their 1040 form, they must then apply the credit on line 52. Equipment and installation receipts, as well as government-approved manufacturer certifications, should be kept on hand in case of Internal Revenue Service inquiry.

Miscellaneous Solar Gadgets

Before rushing to get esoteric solar equipment for the home, solar enthusiasts should make sure the government recognizes it as an applicable "property." For example, solar fans are eligible for the credit, but only the solar panel portion, not the fan. Furthermore, the government has not taken a definitive stance on window treatments. U.S. consumer energy-efficiency program Energy Star says unless there is a manufacturer's certification, a solar screen, for example, would probably not be eligible.

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