The federal solar tax credit can make solar panels affordable for your property. However, the downside to these credits is that they aren’t permanent! In turn, it’s vital that a homeowner take advantage of these incentives and schedule a solar consultation and installation quickly.
Before you put off a solar panel installation for another year, check out some vital information about tax credits for solar panels. As always, be sure to discuss this information with your accountant or financial adviser when filing your taxes and hold onto all receipts and invoices related to the project. If you do, you’ll then enjoy maximum savings and many other benefits from your new solar panel system. Learn more about solar incentives with our team at Alliance Solar.
The Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC), is a tax incentive available to homeowners who install solar panels. The credit allows homeowners to deduct 30% of the cost of installing a solar system from their federal taxes. The credit is available for both residential and commercial solar installations.
In order to take advantage of the solar tax credit, you must have a federal tax liability that is equal to or greater than the value of the credit. The credit can be applied to both new and existing homes, and there is no maximum limit on the amount that can be claimed. However, the credit is only available for systems that are installed by December 31, 2035.
If you're thinking about installing solar panels, the solar tax credit can save you a significant amount of money. Be sure to consult with a qualified tax professional to determine if you qualify for the credit and how much you can claim.
Solar tax incentives vary by year and are reduced over time! Consequently, it might be easier for you to understand those credits if they’re explained by year. Again, be sure to check with your accountant or on any requirements or changes before filing your taxes. This will ensure you file accurately and take advantage of all the credits for which you’re eligible!
First, note that a tax credit refers to a dollar-for-dollar reduction on taxes you owe. Second, this information is for federal and not state taxes! Not all states offer tax credits, while some provide excellent financial incentives for going solar.
The federal solar tax credit, often called the investment tax credit or ITC, allows you to deduct a certain percent of solar installation costs. Note, however, that the system must be installed during that credit year. Also, the ITC only offers a percentage of those costs! Don’t assume you can deduct all your solar installation costs on your tax returns at the end of the year.
Also, consider that congress can extend solar tax credits at any time! As a matter of fact, congress extended those credits in December 2020 and again in 2022 when the Inflation Reduction Act was passed.
Due to the Inflation Reduction Act, the Federal Solar Tax credit is 30% again in 2022. This applies to both residential and commercial installations. The credit is available retroactively for systems placed in 2022 that only received 22%.
The Federal Solar Tax Credit has been extended until 2033, when it drops to 26% and 22% in 2034. Therefore, the solar tax credit is 30% for solar panels installed in 2023.
Your accountant is the best source of information when it comes to qualifying for solar tax credits. You also can schedule a virtual solar consultation with our team to determine if solar is right for your home. However, consider some general details about these credits and how they’re applied for homeowners:
Your solar panel purchase price is not the only expense included in your potential tax credit! Also included are labor costs for any preparation and the installation itself. Additionally, the credit also includes costs for permits, inspections, and developers.
Also, the ITC includes needed wiring, inverters, roof rack or mounting equipment and other such items. You can also deduct energy storage devices or batteries, as well as your sales taxes. In other words, save your receipts for all expenses related to solar panel installation for that residential energy credit! Your accountant can note which are deductible through the ITC tax credit.
Unfortunately, a homeowner cannot claim the solar tax credit twice. Specifically, whatever credits you claim for one year’s tax returns are not deductible for another year. However, you can claim any upgrades or improvements to your system. For example, if you invest in a new inverter or power storage equipment, those costs are typically deductible.
Also, note that you can also claim any unused tax credits for solar panels the following year. Your tax accountant can review your receipts and paperwork and note any unused credits. In turn, he or she can then advise on how to deduct them for the next year’s taxes.
From 2016 through 2019, federal solar tax credits allowed homeowners to deduct 30% of their solar installation costs. Subsequently, congress reduced the federal solar tax credit to 26% for 2020 through 2022, and then to 22% for 2023. However, Congress renewed the ITC in 2022 so it'll be at 30% credit again until 2033. Therefore, homeowners should take advantage of the 30% solar tax credit. Also, note that manufacturer rebates, state tax credits, and other financial incentives also change over time. In turn, it’s vital that homeowners invest in solar quickly to take full advantage of all those financial incentives on the state and local level as well!
State tax credits for solar power vary by state and can also change from year to year. For example, many states waive sales tax for solar panels. In a state with a 7% sales tax, that means saving $70 for every $1,000 you spend on solar panels.
Also, some states offer a property tax exemption for solar installation. In other words, if your home’s value increases after solar installation, you’re not taxed for that increased amount. This can also save you hundreds and even thousands you would otherwise pay for your solar panel installation.
Additionally, research state incentives and rebates for your solar purchase! Some states have offered a 10% to 20% one-time rebate for solar panel purchase and installation costs. Again, these amounts have changed, and some states have even eliminated them over the years.
Many utility companies offer credit for solar power produced by homeowners through net metering. However, this is not a tax credit or rebate, although it can mean lowered or eliminated power bills. Consider how net metering works and how it saves you money year-round.
Tax credits make solar more affordable, but they’re not the only advantage to consider! Check out some added financial benefits of going solar on your property:
Solar panels offer more than just financial advantages for homeowners, and there are many reasons to consider a solar installation! For instance, solar panel installation and recycling are both very labor-intensive. In turn, you’re creating local jobs and stimulating your area economy when you go solar.
Also, consider the environmental impact of choosing solar panels. While electricity itself offers clean energy without pollutants, power plants produce tons of emissions! These include mercury, acidic gases, and many toxic metals. Consequently, switching to solar means reducing the pollutants for which you’re responsible.
Lastly, note that investing in solar can mean encouraging your neighbors to do the same. One home on the block with solar panels can quickly lead to several more homes investing in solar panels. In turn, your neighborhood will reduce pollutants and create local jobs at the same time.
Check out some other frequently asked questions about claiming the federal solar tax credit through 2023. As always, check with your accountant or financial adviser before filing, to ensure your return is accurate.
The federal solar tax credit applies to those with a financial stake in a cooperative or condominium. If you contribute the cost of solar panel installation for these residences, you can typically still claim that credit.
Ground panels are an excellent choice for properties with small or sloped roofs. Also, adding ground panels affords you more solar power production no matter a property’s roof size! Additionally, you can claim the federal solar tax credit for panels installed on the ground, not just a home’s roof.
The short answer is yes, you can claim the federal tax credit for panels installed on a vacation home. However, note that this credit is for residential properties and not businesses. So, if you rent out your vacation home, check with an accountant before filing your taxes. He or she can advise if you might claim a deduction on a business tax filing instead.
First, you can claim federal credit even if you take advantage of rebates and other such deals. However, note that the federal tax credit applies to your total purchase and installation cost. As an example, suppose a rebate has lowered your solar panel cost from $10,000 to $9500. Consequently, you would claim the appropriate tax credit on the $9500 you spent.
The IRS verifies solar credit by reviewing documentation from the solar energy company that installed the system. This documentation may include a certificate of installation, photos of the system, or other information that confirms the system was installed. Be sure to hold onto this documentation in case the IRS ever questions your solar credit.
Alliance Solar is happy to provide this information about federal solar tax credits to our readers. Hopefully, you found it helpful! In turn, it’s vital that you call now about a solar installation and take advantage of the renewed solar ITC! Our solar panel installation contractors can design an array to fit your needs and budget. Above all, we’re happy to explain how solar works and can benefit you financially. To get your property started with a FREE consultation, call us right now.
