For instance, you have property where you live for three months, then you move to another place and rent out that house for nine months, then you can claim only 25 % of the tax credit.
You can calculate the claimable amount with the following formula;
Cost of installing a solar system x 26% x 25% = Claimable tax credit
Considering the above example, if the cost of installing a solar system is $10,000, you can calculate it as follows;
$10,000 x 0.26×0.25 = $650
So you can claim only $650 out of $2600.
One thing more to consider is that the percentage of tax credit changes with the year. So consider the tax year to calculate your claimable tax credit.
What are the conditions to claim the tax credit for a rented property where you have installed a solar system?
- First of all, find your eligibility to claim a tax credit by confirming that you are the owner of the solar system rather than leasing it.
- You are the owner of the property, in case you have rented, you also live there for a part of the year.
- You need to file IRS Form 5695 as part of your tax return to claim the tax return.
- You need to calculate the tax credit amount in part one and enter the result on your 1040.
If your federal tax liability is lower than your tax credit amount, you cannot claim the refund of the surplus amount. But you can still take advantage of the surplus amount by carrying forward this credit to next year.
Again taking the first example and let’s suppose you pay $10,000 to install a solar system on your home in 2021, which means you are eligible for a $2600 federal solar tax credit. If your federal tax liability for 2021 is only $3000, you will owe no federal taxes that year, and in 2022, you will reduce your tax liability by $400.
If you were unsuccessful in claiming the tax credit in the previous year__ you can file an amended return.
You must also know that the Federal government has extended the tax credit amount in 2022. It will expire in 2023. So if you think you are eligible for the tax credit, it is time to drive the nail aright.