Claiming the Federal Tax Credit
Once you’ve determined that you’re eligible for the tax credit, you’ll need to fill out the IRS 5695 Form, “Residential Energy Credits”, to claim it. Here, you’ll state the cost of your solar energy system and calculate the value of the credit, along with the amount of the credit that you will be able to claim. We’ll walk you through it step by step:
On line 1, enter the value of your total solar energy system installation cost.
It’s unlikely, but if you also installed a solar water heating system, a small wind turbine, or a geothermal heat pump, include these values on lines 2-4.
Example: Just solar, no other tax credits claimed – so, 0 for each line.
On line 5, add everything up from 1-4.
On line 6, multiply this amount by 0.30 to determine the amount of your credit.
On line 13, simply restate this amount, unless you are adding any tax credits carried over from the previous year or the fuel cell tax credit (lines 11 and 12).
Now that you’ve figured out how much your credit is worth, you’ll need to see if there are any limits on the tax credits you can claim and input this amount on line 14. Use the “Residential Energy Efficient Property Credit Limit Worksheet” on page 4 of the instructions for Form 5695 to determine your limitation based on tax liability, if you have any limitations.
On line 1 of the Residential Energy Efficient Property Credit Limit Worksheet section enter your total federal tax liability on line 47. You should know your tax liability from filling out line 47 of Form 1040.
Example: Let’s assume a $9,000 tax liability.
On lines 2-9, enter additional tax credits you are claiming as referred to on each line – these can include tax credits for adoption expenses, interest on a mortgage, buying a home for the first time, or buying a plug-in hybrid or electric vehicle. If you aren’t claiming anything else, write 0 for each line.
On line 10, add the value of all of these other credits.
On line 11, subtract the value of these additional credits from your tax liability from line 1 to find the limit on the credit you can claim for this year.
Alright, we’re almost there! Now that you’ve done the math on how much of the ITC you can claim this year, return to Form 5695 and record the limit and calculate how much of your tax credit you’ll carry over to next year’s taxes.
On line 14, enter the value from line 11 of the worksheet.
On line 15, enter whatever is lower between line 13 (your total credit) and line 14 (the limit you can claim this year).
On line 16, subtract line 15 from line 13 to calculate the carry-forward tax credit for next year’s taxes.
Example: $0 ($9,000 minus $9,000).
For this example, the taxpayer only owes $9,000 in taxes this year, meaning they can take the advantage of the full tax credit.
In cases where the taxpayer’s tax liability is less than the Federal Tax Credit, the difference can be carried over to next year and claimed again.
Now that you’ve finished the Form 5695, we can apply the $0 to – Form 1040, your ultimate tax bill! Take the number from line 15 of Form 5695 ($9,000 in our example) and enter it on line 53, “Residential energy credits” of 1040.
OR, if you’re submitting Form 1040NR, this is found on line 50.
Congratulations, you’re done! In addition to saving money by generating your own solar power and helping to save the planet, you may get to save on your taxes this year!
Not a bad deal… so long as you get those solar panels installed by the end of 2019! For information on how to claim the Federal Tax Credit over two tax cycles, click here.
* Availability of Federal & State Tax Credits is dependent on your unique financial situation. Please consult a tax professional regarding your eligibility.