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Solar Tax Credit For Rental Property: A Comprehensive Guide

Written by: Ryan Reid
Last updated: January 30, 2024

The Solar Tax Credit, officially known as the Investment Tax Credit (ITC), is a federal policy that provides financial incentives for the installation of solar energy systems. It allows property owners to deduct a significant portion of the cost of installing a solar energy system from their federal taxes. This makes it a highly attractive option for homeowners and real estate investors looking to reduce their tax burden and simultaneously contribute to a more sustainable future.

Explore the financial benefits of the Solar Tax Credit for rental property owners. Understand how to apply, the implications for your property's value, and future changes to this significant incentive. Don't miss out on opportunities to reduce tax liability and increase sustainability.

Solar Tax Credit For Rental Property

For rental property owners, the application of the Solar Tax Credit is a bit more complex. The key factor to remember is that the solar tax credit can only be claimed by the entity that owns the solar energy system and not necessarily the property. Therefore, if a rental property owner installs a solar energy system on their property, they are eligible to claim the solar tax credit.

However, if the system is leased or under a Power Purchase Agreement (PPA) with a third-party company, then that company is the owner of the system, and they are the ones who can claim the tax credit. Rental property owners must therefore carefully consider their solar energy system acquisition method to ensure they are eligible to claim the solar tax credit.

Financial Implications Of The Solar Tax Credit

The financial implications of the Solar Tax Credit can be significant. As of this writing, the solar tax credit is set at 26% of the cost of the system. This includes both the equipment and installation costs. For example, if a rental property owner invests $20,000 in a solar energy system, they could potentially reduce their federal tax bill by $5,200. This reduction in tax liability can significantly improve the return on investment of the solar energy system.

The Future Of Solar Tax Credit

While the Solar Tax Credit is an attractive financial incentive, rental property owners should be aware that it is currently scheduled to phase out over the next few years. The rate will drop to 22% in 2023 and then to 10% in 2024 for commercial installations, while residential installations will receive no tax credit. It's therefore beneficial to act sooner rather than later to maximize the financial benefit.

How To Apply For The Solar Tax Credit

Applying for the Solar Tax Credit involves a few steps. First, you'll need to fill out IRS Form 5695, 'Residential Energy Credits'. This form asks for details about your solar energy system costs. Once completed, you'll include the result on your main tax form, like the 1040. The credit is non-refundable, which means it only applies to your tax liability. However, if the credit exceeds your tax liability, the excess can be carried forward to future tax years.

Solar Tax Credit And Increasing Property Value

An added benefit of installing a solar energy system is the potential increase in property value. Studies have shown that homes with solar energy systems tend to sell faster and at higher prices compared to homes without such systems. This makes the Solar Tax Credit not only a tool for tax relief and sustainability but also a strategic investment to enhance the value of your rental property.

State And Local Solar Incentives

In addition to the federal Solar Tax Credit, many states and local governments offer additional incentives for solar energy system installation. These can take the form of state tax credits, cash rebates, property tax exemptions, or expedited permitting processes. It's worth researching local policies in your area to maximize the financial benefits of going solar.

Frequently Asked Questions

To make the most of your solar tax benefits, it is crucial you understand the Solar Tax Credit for rental property. Here we have answered some of the questions people most commonly ask regarding this:

Can I claim the Solar Tax Credit if I lease my solar energy system?

No, the Solar Tax Credit can only be claimed by the owner of the solar energy system. If you lease the system or have a Power Purchase Agreement, the leasing company owns the system and is eligible for the tax credit.

What happens to the Solar Tax Credit after 2024?

For commercial installations, the Solar Tax Credit will drop to 10% in 2024. For residential installations, there will be no tax credit. However, Congress could potentially extend or modify these provisions.

Can the Solar Tax Credit be carried forward to future tax years?

Yes, if the credit exceeds your tax liability in the year of installation, the excess can be carried forward to future tax years.

Maximize Your Benefits With Solar Tax Incentives For Rental Property

The Solar Tax Credit for rental property offers owners a fantastic opportunity to reduce their tax liability, improve the environmental sustainability of their properties, and potentially increase rental yields due to reduced utility costs for tenants. However, the eligibility and financial implications need to be carefully considered to maximize the benefits. As the solar tax credit phases out in the coming years, now is the perfect time to consider investing in a solar energy system for your rental property. The benefits of doing so are clear, and the financial incentives make it an attractive proposition for forward-thinking real estate investors.

Learn more ways you can unlock savings on solar energy. Find out how you can take advantage of California's solar rebates today by visiting

Ryan Reid
Ryan Reid is a dedicated social worker with a passion for improving the lives of vulnerable individuals and families in his community. With a bachelor's degree in Social Work from a reputable university, Ryan has spent over a decade working in various roles within the social services sector. His expertise lies in assessing the needs of at-risk populations, connecting them with essential resources, and advocating for their rights. Ryan's compassionate approach and unwavering commitment to social justice make him a trusted advocate for those in need of government assistance and support.
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