This week in Austin is hot, and I'm not talking about one of the state capital's many music or technology or film or other festivals. It's going to be weather hot.
Like sunny and 105 degrees hot tomorrow, according to forecasters. If that happens, it will break by a degree the record for May heat.
I know, lots of places deal with extreme heat. Those residents also tend to face utility issues, like brown- or blackouts, when the temperatures put pressure on the electric grids.
That’s why many across the nation have opted for their own backups by installing solar panels.
A lot of these solar converts also did so because of enhanced environmentally friendly tax breaks in the Biden administration’s Inflation Reduction Act.
At least some of those tax benefits, however, soon could be gone.
GOP tax bill targets green energy: Republicans typically aren’t big fans of climate-related tax benefits. Now, with the party in control of both Congressional chambers and the White House, the prior administration’s clean energy tax breaks are on the chopping block.
The ostensible reason is that the money would be used to pay for other tax benefits that are part of the one big beautiful reconciliation bill.
Most of that bill’s changes would take effect in 2026, leaving the current law in place through the end of this year.
So, if you’re inclined to go solar, now could be your best last chance, at least for a while.
Here’s an overview of the solar energy systems tax credits still in the tax code.
Maximum credit amount: The federal tax credit for solar energy (as well as for wind, geothermal, and battery-storage installations) officially is the Residential Clean Energy Credit.
As noted, it was expanded and extended by Congress in 2022 as part of the Inflation Reduction Act.
The best thing about the environmental tax break is right there in its name. It is a tax credit. That means you get a dollar-for-dollar reduction in any tax you owe.
It is, however, a nonrefundable tax credit. Again, the names says it all. The clean energy credit can zero out any tax liability, but if your credit is larger than your tax bill, you won’t get the excess back as a refund.
Still no tax bill is definitely worthwhile.
And the credit keeps on giving. You can carry forward any excess unused credit and apply it to tax you owe in future years.
Timing the savings: So just how much can the credit for your shift to solar help at tax time?
Overall, the Residential Clean Energy Credit has no annual or lifetime dollar limit, except for credit limits for fuel cell property.
That means you can claim the annual credit every year that you install eligible property until the credit begins to phase out in 2033. Or until it is terminated by Congress and the Trump administration.
In addition to the costs of the solar equipment, you can count installation costs in calculating your tax credit.
The timing of the credit also affects, for now, your potential tax dollar savings.
Taxpayers can claim a 30 percent tax credit for qualifying systems placed in service on Jan. 1, 2022, through Dec. 31, 2032.
The tax credit phases out starting on Jan. 1, 2033, dropping to 26 percent. That level is in place (for now) the 2033 tax year only.
Tax year 2034 is the final year for the solar credit. That year it is phased down to 22 percent.
Credit-eligible products: The tax credit applies to a couple of solar-power home systems.
The most widely known are solar panels, or photovoltaic systems. These are solar cells that capture light energy from the sun and convert it directly into electricity.
Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors, serving as both solar electric generation and structural support systems. These solar roofing tiles and solar roofing shingles can qualify for the credit.
Eligible photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirements.
The Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics from the U.S. Department of Energy has more on the panels’ tax break. Energy Star’s buying guidance also can help you learn more about rooftop solar options, and what questions to ask contractors so you can determine if rooftop solar is right for you.
Solar water heaters also may qualify for the tax credit. They come in a wide variety of designs, typically described according to the type of collector and the circulation system.
But all include a collector and storage tank, and all use the sun's thermal energy to heat water.
Solar water heating systems generally are designed for use with an electric or gas back-up water heater. Systems that qualify for the tax credit must get at least half of the energy used from the sun.
The solar-heated water must be used in the dwelling. The credit cannot be claimed if the solar water heater is used with swimming pools or hot tubs.
The system also must be certified by the Solar Rating and Certification Corporation (SRCC) or a comparable entity endorsed by the state government where the system is installed.
Claiming the credit: Taxpayers can claim a credit for eligible solar units installed at their existing principal residences, as well as at second homes located in the United States.
You do so by completing Form 5964, Residential Energy Credits, and submitting it with your annual Form 1040 tax return. The solar component is in Part 1 of the form, and more on filling it out can be found it its instructions.
Don’t overlook state, local help: While the federal tax benefits for green energy systems might soon be gone, your state or more local government or utility provider might offer benefits.
Austin Energy, which told me in my latest update that I used 6 percent more electricity than last week (I dread the next report!), also included tips on ways to save energy.
Among them was a suggestion to check out the utility’s rebates and low-interest loans to help customers make home energy efficiency upgrades.
In addition to touching base with your energy provider about similar offers, also check out the nonprofit Rewiring America’s searchable federal and state incentives database.
You also might find these items of interest:
- PACE-ing your energy usage
- Use federal home energy tax credits to fight the heat
- GOP transportation bill calls for federal EV, hybrid fees
- Faith groups urged to take advantage of new climate-related tax credits
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