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Solar Tax Credit: What you need to know

by | Mar 3, 2017 | RV Life Taxes, Tax Credits | 3 comments

This year is different, because this was the year you installed solar on your RV, and now you’re ready to get that big fat tax credit to help with that expense. Let’s clarify the solar tax credit.

UPDATED to reflect current tax law as of Jan 2021

Solar Tax Credit

The solar tax credit was extended. Read the full text here. Residential information starts on page 4915. Warning: it’s long! 

Good news for those who plan to install solar in 2021, 2022, or 2023.

If you’re reading this and haven’t yet installed solar on your RV, you only have a couple more years to get this sweet tax credit. 26% off the cost of a system is nothing to scoff at people. The tax credit decreases to 22% for tax year 2023 and then expires December 31, 2023… so what are you waiting for?

Yes. Your RV or motorhome qualifies for this residential energy tax credit! This is especially true if your RV is your main or only home. 

From all the regulations I’ve seen, I don’t see why a 2nd home or vacation property wouldn’t qualify as long as it can be considered a residence and it’s not commercial property. The latest regulation simply extended the credit that was already in place. I can’t find any regulations that changed the credit to the main home only. (See IRS Notice 2013-70) If it does, I’m happy to update this post once again so it shows the latest regulations.

It states right in the instructions that it doesn’t have to be your main home. (Taken directly from the IRS website):

Qualified solar electric property costs.

Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors, and thus serve functions of both solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for the credit. This is in contrast to structural components such as a roof’s decking or rafters that serve only a roofing or structural function and thus do not qualify for the credit. The home doesn’t have to be your main home.

Now then, let’s get down to it.

What you need to claim the solar tax credit

  • The receipts for your solar installation. I always push for keeping good records anyway but it’s extra important if you plan on taking a tax credit.
  • IRS Form 1040 – The personal tax return form.
  • IRS Form 5695 – The residential energy credit form.

What qualifies as residential energy property?

Taken directly from the IRS: “Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home.

Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. The home does not have to be your main home.”

All that is a fancy way of saying pretty much any cost related to installation and materials counts. Claim it. This includes a battery, inverter, wiring, and labor to install!

Form 5695 – Taking the solar tax credit

The thing about the solar tax credit is it isn’t “fully refundable,” meaning you can only take the credit for what you owe in taxes. This is different than other, fully refundable tax credits like the Child Tax Credit and Earned Income Tax Credit.

Luckily, you can carry over the unused credit to the next tax year. If you can’t claim the whole credit on your current taxes, you get to reduce your tax bill next year, too. A tax liability calculation worksheet is provided in the instructions for Form 5695. 

Schedule 3 as part of Form 1040

Below is an example of how your credit amount will show up on Schedule 3 that is part of your Form 1040. If your solar energy system costs you $16000, your taxes are reduced by a credit of $4,800. However, if you only have a tax obligation of $4,600, that’s all the solar tax credit you can claim for that tax year. You can carry the other $200 credit over to the next tax year.

solar tax credit

Once you have Schedule 3 filled out, that number will carry over to your 1040 on page 2 Line 20. 

solar tax credit

Should I claim the tax credit if I partially paid (e.g., a deposit) for an installation that won’t be completed until the following year?

No, the instructions for Form 5695 say “Costs are treated as being paid when the original installation of the item is completed,” so you can claim all the costs for your installation no matter when they were paid, but you have to wait to claim them in the year the installation takes place. Keep all your receipts and documents related to the install!

If I installed a solar panel system a few years ago and now I want to add new panels, can I claim the credit?

Yes! You can claim the credit for any new costs associated with the addition. You can’t go back and claim the credit for the previously installed equipment. Hopefully, you already claimed the credit for those costs back then.

You also cannot claim the credit if you buy a vehicle or RV with the solar already installed. That doesn’t count as installing a solar electric system.

If I install solar and claim the tax credit, will I have to repay the credit to the government if I sell the house within a certain number of years?

No! If you install a solar panel system on a home you own, you can claim the whole credit and sell at any point after. Keep in mind this is only true for homeowners. The law is significantly more complex for commercial solar installations.

Have questions about other RV-related tax credits available to you? Check out the top 10 tax questions and answers for full-time RVers.

If you’re looking for even more tax tips – sign up for my newsletter below. I’ll deliver helpful information directly to your inbox. 

3 Comments

  1. Lisa Plante

    I bought an RV with 200W solar already installed but I am looking to upgrade/replace my AGM batteries with a lithium system. If I add or upgrade my solar panels with the lithium system can I take the tax credit based on the whole upgrade? Is there any minimum change that must occur with solar to qualify?

    Reply
    • Heather

      Yes. You can use the credit if you upgrade your batteries and solar panels.

      Reply

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  1. 7 ways to save money on your taxes - Tax Queen - - […] To read more about this credit, check out this post specifically about the residential solar tax credit. […]
  2. Top 10 tax questions for full-time RVers and their answers - […] other tax deduction I see often is for solar. If you add solar to your RV, there is a…

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Hi! I’m Heather Ryan, EA and I live full-time in an RV with my husband and two dogs. As a full-time digital nomad, I understand many of the unique tax situations created by travel. I also fully support entrepreneurs and the struggles they face. The goal of this site is to offer my knowledge through advice and tips to real-life situations and questions.

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