How the federal solar tax credit works
Before we get into the solar tax credit specifically, let’s go over the basics of how a tax credit works. If you owe $3,000 in federal taxes but are eligible for a tax credit of $1,000, your tax liability drops to $2,000. Pretty straightforward.
The solar tax credit works just like this. The value of the tax credit you earn is based on a percentage of “qualifying costs” of installing solar panels. For 2022, the solar tax credit is worth 30% of the installation costs. So, if your solar installation cost $20,000, you would be eligible for an income tax credit of $6,000.
Solar systems installed in 2033 will receive a tax credit equal to 26% of installation costs. In 2034, the tax credit will be worth 22%. In 2035, the federal solar tax credit will expire altogether.
This means a $20,000 solar system installed in 2022 would receive a credit amount of $6,000, while a system installed for the same price in 2033 would only receive $5,200.