Tax Breaks for Solar Energy

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    Qualifying Products

    • The federal Energy Star web site names two types of solar energy products that qualify for a tax break. Solar water heaters capture thermal energy from the sun to heat water for a dwelling. All types of Energy Star-rated solar water heaters qualify for the credit. Solar panels, or photovoltaic systems, capture the sun’s thermal energy and translate it directly into electricity. Photovoltaic systems that provide electricity for a residence and meet fire and electrical code requirements are eligible for the credit.

    Credit

    • The federal tax credit for solar energy systems is 30 percent of the total cost of the system. This includes the cost of installation. Systems installed before Dec. 31, 2016, qualify for the credit. It’s taken for the tax year during which the system was installed. Filers apply with Tax Form 5695.

    Specifications

    • To qualify for the tax break, the installed system must generate at least half its power from the sun, and it must be certified by the Solar Rating and Certification Corporation or a comparable, government-approved company. It must be installed in a principal or secondary residence owned by the filer taking the credit. The residence may be existing or new construction.

    Benefits

    • A tax break isn’t the only benefit of installing a solar energy system. Solar energy is a clean, renewable resource, making it a healthy choice for the environment. After the initial expense of installing a solar energy system, the energy is free. Also, solar energy systems require little maintenance, because there are no moving parts. In remote areas, it may be easier to install a solar energy system than to connect to an electrical grid.

    Considerations

    • Solar water heaters only qualify for the tax credit if they’re used to heat water for inside a residence. If they’re used to heat water for a swimming pool, hot tub or other outdoor water source, they’re not eligible.

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