From saving the environment to saving headaches when windstorms down power lines, there are many reasons people switch to solar power. What many people don’t know is how to take advantage of the tax benefits they are entitled to for choosing solar power. Keep reading to discover how to navigate the challenging waters of the tax code and claim solar tax credits in 2021.
Who Qualifies for the ITC?
Before you try to claim the solar tax credit in 2021, you have to make sure you qualify. According to the IRS, you will qualify for this tax credit if you own solar panels and are using them on your residential or commercial property. You will not qualify if you are only leasing solar panels.
How To Claim Solar Tax Credits in 2021
To claim the ITC (Solar Investment Tax Credit), you’ll need to fill out Form 5695. Luckily, although the form is two pages long, it is pretty simple to fill out. Here is a step-by-step guide:
Step 1: Fill In Your Personal Information
The first step of claiming your 2021 solar tax credit is to fill in your legal name as shown on your tax return and your social security number in the appropriate boxes above Part I of the form.
Step 2: Fill In Part I
The second step of claiming your solar tax credit in 2021 is to fill in Part I. You may skip lines 1 through 11 if you are only claiming a credit carryforward from 2019. To fill in Part 1, put your solar electric property costs into the box on line 1. If you have qualified solar water heating costs, that information goes into the box on line 2. If you don’t have qualified small wind energy or geothermal heat pump costs, put a zero in the third and fourth boxes. Add up the totals in the first four boxes and put the sum in the box on line 5. To get the value that should go on line 6, multiply the value in the fifth box by 0.26.
Skip lines 7a through 11 if you did not install a qualified fuel cell on your primary home. The box on line 12 is where you put the credit carryforward from 2019 if you had one. If you did not install your solar panel until 2020, put a zero in the box on line 12. The value of this box will also be zero if you installed solar panels prior to 2020 but were able to benefit from the entire tax credit in 2019.
Line 13’s box is simply the sum of lines 6, 11, and 12. In Line 14’s box, enter the amount from the Residential Energy Efficient Property Credit Limit Worksheet. Then, enter the smaller of Line 13 or Line 14 in Line 15’s box. Finally, subtract Line 15 if it is smaller than Line 13 and put that value in Line 16’s box. This is the amount you must carry into 2021 because the solar tax credit exceeded your tax liability for 2020.
Step 3: Fill in Part II
Finally, fill in the second part of the form. It is all straightforward and you should have no problems filling this part out. If you have any questions, we strongly recommend that you reach out to a certified public accountant.
Remember to File Early!
It’s always a good idea to file your taxes early, but especially this year in 2021. If you didn’t go solar last year but are considering it now, contact us today and one of our Energy Coordinators will be happy to help!