If you’ve done research on installing solar panels on your home, you’ve probably heard about the federal Investment Solar Tax Credit or ITC. What is this tax credit, exactly, and how does it work?
Overview of the solar tax credit
First of all, let’s clarify what a tax credit is. Simply, put a tax credit gives you a dollar-for-dollar reduction in your income tax.
It’s really simple. When you install solar panels for your home. the federal government gives you a rebate on your taxes. It’s for 26% of the value of your solar power system.
The solar tax credit is one of the biggest values for homeowners if they choose to install a home solar power system. For example, if you decide to install a solar system for your home and it costs $30,000, you will get a credit for 26% of the total solar system cost.
Now you’re likely financing your solar system, so your out-of-pocket costs would be zero. You still get a tax rebate for 26% of the $30,000 solar system. It is really important to take advantage of this generous federal subsidy to support the use of renewable (solar) energy and save money on residential solar panels as a consumer. This tax credit is not going to last indefinitely.
When you do your taxes at the end of the year you simply include the cost of your home solar power system and the government is going to send you a check back for that amount.
Will the solar tax credit (ITC) expire in 2022?
No. According to Energy.gov, as of December 2020, Congress passed an extension of the ITC, which provides a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023. The tax credit expires starting in 2024 unless Congress renews it.
There is also no maximum on the amount that can be claimed during this time.
For solar, the legislation provides a two-year extension of the ITC at its current 26 percent through 2022 and at 22 percent through 2023, as well as an extended January 1, 2026, deadline for completing projects that have claimed the credit based on when they started construction, under “safe harbor” provisions.
(A safe harbor is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule.)
The incentive schedule is as follows:
- 2021-2022: Residential and commercial solar energy system owners can deduct 26 percent of the cost of the system from their taxes.
- 2023: Residential and commercial solar energy system owners can deduct 22 percent of the cost of the system from their taxes.
- 2024: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. The ITC is no longer available for residential solar energy systems.
Eligibility criteria for the solar tax credit
You may be eligible for the solar tax credit or ITC if you meet all of the following criteria:
- Installation dates for your solar power system are between January 1, 2006, and December 31, 2023.
- The solar system in question is at your primary or secondary residence in the United States.
- You own the solar power system (for example, you purchased it outright or through financing).
- The solar power system is new or being used for the first time. The solar tax credit can only be claimed on the “original installation” of solar panels for your home.
What solar expenses can you include in your tax return?
You can include the following expenses:
- Solar panels for your home or photovoltaic (PV) cells used to power an attic fan (not the fan itself)
- Labor costs for contractors for onsite preparation and assembly, original installation, permitting fees, inspection costs, and developer fees
- Balance-of-system equipment. The balance of system (BOS) includes all components of a solar power system other than the solar panels.
- Sales taxes on eligible expenses
While we did our best to simplify the information, we know it’s a lot to take in. The conclusion we hope you arrived at, as we did, is that the solar tax credit is one of the main reasons you want to go solar as soon as possible. By 2024 the solar tax credit will no longer be available for residential installations.
When you think about taking the step to go solar. Remember, you are helping the environment, helping the economy through supporting solar jobs. Helping yourself by becoming an independent energy generator and taking your power back by investing in yourself. No need to supporting electric companies whose rates continue to rise.
Now that you know how the solar tax credit works Ccontact us to design a custom quote for you. We look forward to having you join us in this renewable energy revolution for this planet we call home.
“Balance Of System – Wikipedia”. 2021. En.Wikipedia.Org. https://en.wikipedia.org/wiki/Balance_of_system.
“Homeowner’S Guide To The Federal Tax Credit For Solar Photovoltaics”. 2021. Energy.Gov. https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics.
“Safe Harbor (Law) – Wikipedia”. 2021. En.Wikipedia.Org.