Do you own a home that rolls, floats, or is stationery? Regardless of whether it’s a first or second home, the 2022 U.S. Inflation Reduction Act provides tax incentives to help alleviate the initial upfront installation cost of a solar installation – whether you do it yourself or hire a professional.
Additionally, this legislation has reinvigorated the renewables market in the United States, leading to a wave of new projects. It has been estimated to reduce U.S. emissions by about 40% by 2030 (compared with 2005 levels), bringing the U.S. closer to President Biden’s goal of cutting emissions in half by the end of this decade.
Homeowners choose solar power for a variety of reasons – to save money on utility bills, have a back-up power source when the grid goes down, and live more sustainably by powering their life with the sun. If you live in the U.S. and are considering taking the solar plunge, you can save a bundle through both federal and state tax credit programs!
Need some inspiration? Check out our recent blogs to learn about families across the U.S. who made the switch to solar on their homes and RVs. As solar educators, we’ve helped thousands make the switch to solar power by providing resources to help people calculate their daily energy demands and DIY their own system.
How Does the Federal Solar Tax Credit Work?
As defined by the IRS, a home includes a “house, houseboat, mobile home, apartment cooperative, condominium, or manufactured home.” So, yes, the solar powered system you put on your RV/van, off-grid cabin, or boat qualifies for the program, whether you hire a professional installer or do it yourself! The federal solar tax credit not only applies to your primary residence, but also to a vacation or secondary home. If you rent out your second home as a business, you can apply for the commercial investment incentive program. There are some special circ*mstances that apply if you rent it out for part of the year while also using it for personal use – see this article to be certain that this tax credit will work for you.
Am I Eligible for the Federal Solar Tax Credit?
You can apply the credit if you meet the following 3 criteria:
- Your solar powered system was installed between January 1, 2017, and December 31, 2034.
- The solar system is located at your residence in the United States.
AND
You own the solar powered system (i.e., you purchased it with cash or through financing. Neither leasing the equipment nor paying a solar company for the energy produced by the system on your house qualifies for the tax credit.)
OR
You invested in an interest in an off-site community solar project. Check out this link for more details.
- The solar powered system is new or being used for the first time. The credit can only be applied to the “original installation,” (i.e., if you bought a home / RV / boat with a solar powered system already installed, you cannot take the credit.)
What Type of System Qualifies & How Much Can I Claim?
The federal solar tax credit applies to any complete solar system (of any size) installed and operational between January 1, 2017 and December 31, 2034. Both on-grid or off-grid systems are included in the program, as well as any shared systems of which you might be a partial owner, referred to as Community Solar.
If the system is (or was) installed and operational during the following years, your credit will be:
- 2017 - 2019* = 30%
- 2020 - 2021* = 26% (per the laws that were in place at that time)
- 2022 - 2032* = 30%
- 2033 = 26%
- 2034 = 22%
- 2035 = 0% (tax credit expires)
*If you have already installed your system and didn’t file for the tax credit with that year’s tax return, all you need to do is file an amended claim for the tax year or years that are affected by your installation.
It is important to note that if your federal solar tax credit ends up being more than your total tax owed on this year’s return, you can carry the remainder over on future returns until you’ve met the total credit allowed. Bonus!
How Much Can I Save with Solar Power?
If you plan to install a complete system for your home, it may cost approximately $25,000 depending on the size of your home, energy usage, and location. With the current tax credit, you’ll save a whopping $7500, so ultimately the entire system will only cost you $17,500. Depending upon how your utility company reimburses you for the excess power that is generated and sent back to the grid, the time it will take for your system to repay you can be greatly reduced!
Or, maybe you have frequent power outages in your area and need a reliable whole home solar generator like the Renogy LYCAN 5000 Power Box in order to run your major home appliances until the power grid returns to normal? You may spend up to $10,000 on this system (including a maximum of 4800W of solar panels), and can write off over $3000 of it with the 30% federal solar tax credit.
If you are an RVer, boat owner, or have an off-grid cabin, you may spend anywhere from $2000 to $10,000 on a complete solar powered system – depending on your energy needs, where you travel & live, the type of battery bank you choose, and the size of your rig/cabin.
Let’s use our own rig as an example. Our simple yet robust $2700 system has allowed us to travel and work from the road wherever we want to be. Need something bigger? Our friends in the Pacific Northwest recently installed a larger Renogy REGO system in their Forest River “Wolf Pup” travel trailer. Their total system, including panels, components, and all additional wiring, etc. cost about $8,500, allowing them to write off $2550 – bringing the total cost of their installation to under $6000 with the federal solar tax credit. This system allows them to run numerous household appliances (including their RV air conditioner for a few hours per day).
Compare this investment with the average electrical hook-up campsite at around $50 per night (nationwide) for just 6 months. In half a year, campers who chose electrical sites will spend upwards of $9000 just for camping fees alone! By investing in a robust solar powered system, you can get away from powerlines, traffic, and city noise and enjoy the thousands of gorgeous, off-grid campgrounds (~$20 per night) and public lands (free) all across the continent. Combine these camping options with a 30% federal tax savings on a complete solar powered system, and your investment will have paid for itself within the first couple of months. Using grade school math, it suddenly becomes a no-brainer to go solar…right?
If you are at the beginning stages of planning your off-grid system check out the many solar resources we provide with special attention given to solar newbies, including an updated 2024 downloadable Solar System Sizing Spreadsheet (Excel document).
What are the Long Term Savings with Solar?
In addition to saving thousands of dollars via tax credits, homeowners can greatly reduce their energy bills over the long term. Many of the families we interviewed were realizing serious savings on their homes within the first few years.
Check out the chart below for some real numbers from southern California homeowners. A solar investment is estimated to break even at just 4 years after the installation (using just the federal tax credit!). The system will offer an additional saving of $112,000 over a 25-year period on electric utility bills!
If you plan to go full-time in your RV like we do, the long-term savings are truly astounding! By boondocking and choosing off-grid campgrounds without electrical hook-ups, we typically spend about $1,250 per year on camping fees. In the past 11.5 years, we’ve spent just over $14,000. If we had paid for campsites with electrical hook-ups over the same period of time (averaging $50 per night depending on the region), we would have spent nearly $210,000 to date! Again, our complete solar powered system cost around $2700, so $14,000 in camping fees + $2700 for our solar powered system = $16,700…vs. $210,000!
When you combine the solar tax credit with everyday savings, it is truly a no-brainer when amortized over the long haul – whether you live in a “sticks and bricks” home, one that floats, or one on wheels!
What Costs Can I Include?
You can include all the costs, such as: materials, products, and labor for installing your solar system. This specifically includes panels that you install directly on the roof, or solar roofing tiles which perform double duty as energy producers and roofing surface. It does not, however, include any improvements that you might need to make to the roof of your house, support reinforcements, etc. which allows your roof to handle the weight of the panels. Even if you have to reinforce your roof, it’s still a roof and cannot be included in the tax credit. Anything specific to the panels, brackets, cables, inverters, and more can be included in the total investment cost.
What IRS Forms Do I File To Report My Expenses?
- Residential Systems: IRS Form 5695
- Commercial Systems: IRS Form 3468
What Records Do I Need to Keep?
Simply retain any receipts for solar equipment and installation fees. You do not need to submit these receipts with your return, but save them with your tax information.
How Do I Find State Solar Incentives?
In addition to the federal solar tax credit extension bill that was passed as part of the 2022 Inflation Reduction Act, many U.S. states also have tax incentives or programs to help homeowners reduce the overall cost of a solar power system, significantly shortening the payback time on your investment.
While the federal solar tax credit is pretty straightforward, state incentives are more varied and complex. For example, Massachusetts offers a solar loan reduction plan based upon income, North Carolina allows any solar investment on your home to be excluded from the property tax evaluation, which is also just 1 of the 5 California state solar tax credit incentives available to residents of the Golden State. To learn about your state’s programs and incentives, visit the Database of State Incentives for Renewables & Efficiency. And if you need help navigating the complexity of your state’s programs, finding a local installer might help cut through the confusion.
When’s the Best Time to Go Solar?
Solar installations start saving their owners money as soon as they are installed, so the sooner you start the process, the quicker you’ll see your investment start paying you back. Imagine the vacations you’ll take or the colleges you’ll be able to afford if you aren’t pouring money into high utility bills? While the federal commitment to personal solar and a cleaner energy future is clear for the next 10 years, don’t wait until it’s too late to take advantage of the excellent state and local programs that are helping people make the switch. Solar is here...and it’s designed for all!
In 2012, Shari Galiardi & David Hutchison left behind careers and a comfortable home in North Carolina to travel with the vintage camper trailer they lovingly restored, outfitted with solar, and named "Hamlet." What began as a short break from careers and responsibility quickly turned into a love affair with roadlife. They have parlayed their higher education backgrounds, desire for life-long learning, and thirst for adventure travel into writing, photography, video production, and public speaking gigs from coast to coast. Known to their friends as simply Shari & Hutch, you can learn more about their full-time, solar-powered adventures on their website at freedominacan.com. Or, follow them onFacebook,Instagram, andYouTubeas “Freedom in a Can, LLC.”
