Residential Solar Energy Credit: What You Need to Know for Taxes
This is the year you installed solar power on your RV. While you can now be off-grid, which is exciting, you also qualify for the residential energy credit on your taxes for that new solar power system.
What’s that you ask? The residential energy credit is up to a 30% non-refundable credit on your taxes for your new solar power.
You read that right! You could qualify for a 30% credit on your tax liability.
If you haven’t already installed solar, be aware 2019 is the last year for 30%. The tax credit decreases to 26% for tax year 2020. It then drops to 22% for tax year 2021 and expires December 31, 2021.
What are you waiting for?
Yes. Your RV, trailer or motorhome qualifies for this residential energy tax credit.
As defined by the IRS, a home is where you lived in 2019 and includes both houseboats and mobile homes. Your RV home must have sleeping quarters, a kitchen, and bathroom facilities to count as a home.
What you need to claim the tax credit
- The receipts for your solar installation. I always suggest keeping good records.
- IRS Form 1040
- IRS Schedule 3 as part of Form 1040
- IRS Form 5695
What qualifies as residential energy property?
Taken directly from the IRS:
Residential energy property includes “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 of 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. Also, this credit applies to a second home.
Taking the credit: Form 5695
A taxpayer calculates and takes the credit on their tax return using Form 5695 in addition to Form 1040 and Schedule 3. Keep in mind the residential energy tax credit isn’t refundable. This means you only use the credit up to what you owe in taxes in 2019. This is different than other fully refundable tax credits, such as the Child Tax Credit and Earned Income Tax Credit.
Luckily, you can carry over the unused credit to the next tax year. For example, if you were not able to claim the whole credit on your 2019 taxes, you get to reduce your 2020 tax bill, too. A tax liability calculation worksheet is provided in the instructions for Form 5695. This allows you to add up your tax credits to see how much of the solar energy credit you get to take in 2019.
Form 1040 Schedule 3 Line 53
Below is an example of how your credit amount will show up on Form 1040. If your solar energy system cost you $16,000, 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 credit you can claim for that tax year. You can carry the other $200 credit over to the next tax year.
When to take the credit
All costs are treated as paid when the original installation of the item is complete. Therefore, you can claim all the costs for your installation no matter when they were paid, but you must wait to claim them the year the installation is complete and your solar power is 100% functional. Keep all of your receipts and documents related to the installation.
Let’s take a look at a scenario. Let’s say you bought the batteries and panels in November 2018. Then you had them installed on your RV in March of 2019. You qualify to take the credit for all the components and installation costs in 2019 because that’s the year solar power was fully functional on your RV.
Adding new equipment
If you already have a fully functional solar system on your RV, but you add more batteries and/or solar panels for an update, you can claim the credit for any new costs associated with the addition. However, 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. It is required that you install new panels to be able to take this credit. If you simply want to add more batteries to your system, I suggest adding a new panel as well to take advantage of this credit.
No repayment necessary
If you install a residential solar power system on a home (an RV qualifies as a home) you own, you can claim the whole credit and sell at any point afterward with no repayment necessary. Keep in mind this is only true for residential solar power including your RV. The law is significantly more complex for commercial solar installations.
You may also choose to move your solar panels and batteries to a new RV should you change your rig. There’s no repayment necessary there either. Nor do you get to take any credit again unless you add new panels to your system.
Keep records
It is important to keep records of all your receipts for your solar install. You can do this digitally if you like. This includes not only receipts for all the solar components like panels, batteries, wires, inverters, etc., but also for any labor for the install. These are for your records should the IRS question any credit you take. If you want to be extra organized, you can keep a spreadsheet with the date of each item purchased or labor and the cost. This will help make it easy at tax time to figure your solar energy credit.
Taking the residential energy credit for your solar power is actually quite simple and a pretty nice bonus for those who plan to be off-grid with their RV. If you still have questions or concerns, I suggest you talk with a tax professional to get answers for your specific situation.
Author
Heather Ryan
Heather is the owner of Tax Queen, a tax firm supporting entrepreneurs and digital nomads. As a federally-licensed Enrolled Agent, she supports her clients year-round with tax preparation, tax planning and bookkeeping for RV entrepreneurs. She also educates digital nomads and entrepreneurs through her blog posts and has written a book, Taxes for RV Owners, to help RV owners understand deductions and taxes. She hit the road in September 2016 and travels in a 5th wheel with her husband and two dogs.
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