If a homeowner is purchasing solar for their home in the United States, undoubtedly, they will want to apply for the Residential Clean Energy Credit. Solar sales professionals need to understand the basics of this tax credit, so that it can be clearly explained to prospective residential solar customers. Of course, all customers should still consult their tax professional to understand how the tax credit will affect their personal financial situation. Still, there are facts of how the tax credit works, what exactly is covered, and more that every single solar sales professional should know.
Here’s a quick excerpt from the Customer Contracts and Agreements course that discusses the Residential Clean Energy Credit and IRS Form 5695. You can tune into the video or read the transcript below.
Pretty much everybody is going to be applying for the Residential Clean Energy Credit, as long as they are purchasing the system and not doing any sort of lease or power purchase agreement, where the homeowner does not own the system.
When I say the Residential Clean Energy Credit, it’s also commonly referred to as the Federal Investment Tax Credit, or you might hear Federal ITC. That’s all the same tax credit.
The first ITC for residential and commercial solar systems was included in the Energy Policy Act of 2005. It created a 30% tax credit, but it was capped at $2,000. It was further extended multiple times over the years, and it was most recently extended in the Inflation Reduction Act that was passed in August 2022.
A tax credit is a dollar-for-dollar reduction in the amount of income tax that somebody would otherwise owe. For example, claiming a thousand dollar tax credit reduces your federal income taxes that are due by a thousand dollars.
The process of claiming this credit really lies on the homeowners. They’re going to need to file this tax form shown here, which is Form 5695 titled Residential Energy Credits. This one’s from 2020, but don’t think the forms changed too much over the years.
So they’re going to submit this form with their tax return to claim the credit. So, really again, it’s dependent on the homeowner, making sure that they are talking to their tax professionals, and they fully understand how this tax credit will affect them in their particular situation and that they make sure that they submit this form.
The credit must be claimed for the tax year that the system was installed. The most important piece of information for this document is going to be the cost of the system. That can be found in your documentation coming from the solar company.
So that’s what they’re going to need to have.
Want to learn more about the Residential Clean Energy Credit and other solar incentives? Check out the Customer Contracts & Agreements course today!