The cost of solar power is trending downwards and has been for several years. Yet, to further incentivize solar energy system installation, the government implemented the solar federal tax credit (also known as the investment tax credit (ITC)).
The federal solar tax credit means homeowners and businesses can deduct 26% of the cost of installing a solar energy system from their federal taxes.
Except: the solar federal tax credit is expected to go down drastically with time. While installation can save you significantly today, there’s no guarantee of such remarkable benefits after the end of the year. It’s a race for solar installation.
Find solar federal tax credits explained below. We explore how you can expect to benefit and why you need to hurry to get the full benefits of the scheme.
Let’s get started.
Solar Federal Tax Credit Explained
What is a solar federal tax credit?
Created via the Energy Policy Act of 2005, the solar federal tax credit proved immensely popular, leading to significant growth in solar power installations. Despite the initial expiration date being in 2007, Congress routinely extended the expiration date, whilst reducing the overall benefits.
From 2023 onwards, the solar federal tax credit will decline first to 22% and then to a mere 10% in 2024 solely on commercial properties.
After almost two decades of benefits, the system is guaranteed to come to an end – the question is, who will benefit before it does?
All you need to benefit are:
- A new solar photovoltaic system was installed between Jan 1, 2000, and Dec 31 2023.
- Your solar system must be installed on a primary or secondary residence in the US.
- You must be the solar system owner; it cannot be acquired via a lease or PPA.
- For an off-site community solar project, the electricity generated is credited against and does not exceed your home’s electricity consumption.
How do solar federal tax credits work?
The solar federal tax credit includes:
- Solar panel and additional solar equipment costs
- Labor costs for installation
- Home batteries
- Sales taxes on eligible expenses
You can claim your solar federal tax credit when filing your annual federal tax return. You won’t be able to claim a rebate if you don’t owe the federal government any taxes for the applicable year, however. You can carry the tax liability forward up to five years – but with the scheme reducing its benefit to 22% in 2023 and ending it thereafter, it’s critical to take advantage of the scheme in 2022.
Claim your solar federal tax credit
With only a short while until the scheme ends, installing a solar energy system this year is essential. Plus, when combined with other schemes, like utility company rebates and state tax credits, you can see the cost of solar installation plummet.
There’s never been a better time to install solar – but time is running out.
References:
https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
https://seia.org/initiatives/solar-investment-tax-credit-itc
