The biggest solar incentive in the United States just got a bit better thanks to the Inflation Reduction Act. It is called the Residential Clean Energy Credit, homeowners can get a tax credit equal to 30% of the cost to install solar panels.

The solar tax credit can save you thousands of dollars on your taxes. For some, it can even completely eliminate what you owe.

Most Americans are eligible for the solar tax credit, but there are some key factors you need to know about how it works, what qualifies, and who can take advantage of it before you make the switch to solar.

It’s available to all taxpayers for their primary or secondary residence located in the U.S. Taxpayers of any income level can take advantage of it. You can use it whether you itemize your taxes or take the standard deduction.

The solar tax credit is available only if you purchase a solar system; if you lease one, you can’t take advantage of the credit. The same applies if you are a member of a power-purchasing cooperative.

You claim the solar tax incentive as part of your annual federal tax return with the Internal Revenue Service (IRS). Your solar provider should supply the proper documentation and instructions upon your demand. We have listed the essential steps in claiming the credit here:

1. First, download IRS Form 5695 as part of your tax return. 
2. Then, on Part I of the tax form, calculate the credit. You file your solar system as “qualified solar electric property costs.” Then, on line 1, enter your project’s total costs as written in your solar contract. 
3. Complete the calculations on lines 6a and 6b. 
4. On line 14, calculate any tax liability limitations using the IRS’s Residential Energy Efficient Property Credit Limit Worksheet. 
5. Finally, complete the calculations on lines 15 and 16. Be sure to enter the exact figure from line 15 on your Schedule 3 (Form 1040), line 5.