If you are considering installing solar panels on your home, there are federal and state incentives that can save you money on the installation cost.
The solar power federal tax credit is one way that the government is encouraging people to make the switch to solar energy. It aims to support the development of the solar industry as part of efforts to reduce carbon emissions.
What is the solar investment tax credit (ITC) and how does it work? Read on to find out what you need to know.
What Is the Solar Power Federal Tax Credit?
The investment tax credit for solar power subsidizes the cost of buying and installing a solar energy system to encourage uptake. It allows homeowners and businesses to claim a tax reduction in the year the system goes into service.
The ITC launched in 2005 for an initial two-year period. It has proved so popular Congress has extended it several times, most recently from 2020 to 2023. The size of the tax rebate has changed over time. For 2020-2022 the rate is 26% but it will fall to 22% in 2023. In 2024, it will be phased out for residential properties and fall to 10% for commercial properties.
The Biden administration is proposing a solar power tax credit extension, although this has yet to receive approval from Congress.
Who Is Eligible for the Solar Tax Credit?
You are eligible to receive federal solar power tax credits if you pay federal income taxes and purchase and install a new solar energy system on your property before the current deadline. The system must be installed either at your primary or secondary residence or on an off-site community project.
If you have already paid your taxes through your paycheck, you will receive a refund. You could use the refund to pay the balance on a loan if you took one out to pay for the solar energy system. If you have any tax credit remaining, you can carry it forward and apply it to the following year’s taxes.
What Costs Does the Solar Tax Credit Cover?
You can claim the solar power federal tax credit to cover the cost of not only the solar panels but the other costs associated with installing the system. The expenses the incentive covers include the following.
- Solar panels
- Solar cells powering an attic fan
- Contractor costs for preparing and installing the system
- System equipment, such as inverters and wiring
- Energy storage systems connected to the solar panels
- Sales tax on expenses
An energy storage system is eligible for the tax credit even if it is installed in a subsequent tax year to the solar panels. Contact your local solar installer for a free estimate of the costs for your property to see how much you can save.
Claim Your Tax Credit to Save Money on Solar Energy
The solar power federal tax credit helps you save on the cost of installing solar panels on your property, putting it within the reach of more homes and businesses.
In some places, you can also claim state tax credits and you can sell surplus electricity you generate to your local utility. Be sure to do your research to find out if these incentives are also available to you.
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