If you installed a solar-powered energy system that produced more than $50,000 in taxable income in 2016, you may be eligible to receive solar energy credits of up to $1,000. You can claim the full amount on your federal income tax return or only the amount earned above the $10,250 threshold if you file a separate return, according to the IRS. Here’s how.
Qualifying Expenses & Taxable Income
To be eligible for the credit, your annual income must exceed a certain limit, which varies by family size. If you’re single and make less than $48,000, your income limits are as follows:
- $48,000 to $93,000 for four employees or fewer;
- $94,000 to $120,000 for five employees or fewer;
- $120,000 to $140,000 for six or more employees;
Your taxable income includes your income from wages, salaries, and tips; self-employment income; interest and gains from securities; and real estate rental activities. Your taxable income is calculated by the IRS according to a set of standard deductions. Your taxable income must also exceed a certain threshold to be eligible for the solar energy credit.
The Installer Credit
If you purchase a residential solar system from a company that is also a licensed residential solar system installer, you may be able to take advantage of an additional cash-back incentive offered by the U.S. government. Known as the installer credit, this cash-back incentive is currently set to expire at the end of 2022. The amount of the credit depends on the size of your system. For example, you may be able to get up to $5,000 in cash-back on a system costing up to $15,000; $6,500 on a system costing between $16,000 and $19,999; and $7,500 on a system costing $20,000 or more.
Eligibility For The $500 California Credit
In addition to the federal solar energy credit, which varies by family size, you may be eligible for a rebate of up to $500 per year from the state of California. The amount of the rebate depends on the size of your system. For example, you may be able to get $250 on a system costing up to $15,000; $300 on a system costing between $16,000 and $19,999; and $350 on a system costing $20,000 or more.
To take advantage of these rebates, you must submit a rebate application to the California Energy Commission. You can find out more by visiting the California Energy Commission’s website. You will have to provide your name, address, and email address. If you’re approved, you will receive a check in the mail.
Key Documents
You must keep several documents to prove you’re eligible for the solar energy credit. These include a utility bill or statement of account showing the amount of electricity you used in the previous year, an income tax return, a W-2 form from your employer, and a detailed purchase agreement for the solar system. You must also keep proof of installation, such as a certificate of completion or a bill from the installer. If you’re claiming the federal solar energy credit on your income tax return and the documentation isn’t readily available, you can ask for an extension from the IRS.
To learn more, you can visit the IRS website. Be sure to file your tax return as soon as possible after the end of the year (if you file near the end of the year, you may not have time to claim the credit). If you’re eligible for the solar energy credit, but don’t know how much you should claim, consult a tax professional or software such as Turbotax to help you figure it out.
In 2020, more than ever before, you need to be mindful of your tax situation. There are bound to be a lot of changes, both big and small, so keep your eyes open for any new developments that may affect you.