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Did you know that there are now enough solar panels in the United States to power roughly 21.8 million homes? Every day, more and more people are learning about both the environmental, and financial, benefits that come with purchasing a solar system for their homes.
There’s a huge number of individuals that can afford solar panels even though they don’t think they make enough. How? Through the use of a solar panels tax credit.
But exactly how does this tax credit work? If you want to learn the answer to this question, then you’re in the right place. In this article, we’ll teach you everything you need to know about the federal solar tax credit.
That way, you can decide for yourself whether or not it’s the right decision for you.
What is a Tax Credit?
Before we learn about a solar panels tax credit, it’s important to be familiar with the concept of tax credits in general. A tax credit is a deduction that you can take out of the amount of federal income tax that you owe each year.
So, while you might not be gaining funds through a tax credit, you are reducing the amount of money that you need to pay, which saves money. For example, let’s say you owe around $5,000 in income taxes.
If you have a tax credit that was worth $1,000, then you would only need to pay $4,000 worth in income taxes.
What is the Federal Solar Tax Credit?
Now that we know more about tax credits, we can go more into the federal one that’s currently being offered on solar systems. The federal solar tax credit is a type of tax credit that can be taken out of the cost that went into a new PV solar system.
Specifically, you can take a percentage of its cost out of your federal income tax. What percentage? Well, it depends on what year you installed it. Over the years, the percentage that you can deduct has steadily decreased.
Luckily, congress passed an extension of the solar panel tax credit. That means that if you install your solar system between 2020 and 2022, then you can claim up to a 26% tax credit on your system.
However, if you wait until 2023, then you can only claim 22% of the system’s worth. If you wait until 2024, then you might be out of luck. That’s the year that the tax credit formally expires (assuming that Congress doesn’t decide to renew it).
How Do You Find Out If You’re Eligible for Solar Panels Tax Credit?
There are some eligibility requirements for this solar panels tax credit. As such, you should make sure that you qualify before applying.
First, your solar system needs to have been installed between the years of January 1st, 2006, and December 31st, 2023. Next, the system needs to be installed in the United States, in either your primary or secondary residence.
You can also install it at an off-site, community location, as long as the electricity doesn’t exceed your home electricity consumption. Next, you need to own the system.
It’s fine if you’re leasing it, but you can’t take the tax credit off of a rental. Finally, the solar system needs to be new or being used for the first time. You can’t take the tax credit off of used equipment.
What Expenses Are Included Under the Tax Credit?
As we mentioned, you can take the tax credit off of your solar system. But, exactly what does that include? In order not to avoid confusion the federal government has laid out everything that can be included in the tax credit.
First, any panels or PV cells that you purchase for the system. Next, any contracting costs. This includes both labor and things like developer fees, permit fees, inspection costs.
Next, anything that balances the system, like wiring, mounting equipment, and inverters. You can also include any energy storage devices. However, these devices must be related exclusively to your solar system.
Finally, you can include sales tax on any of the things listed in this section so far.
What Are Some Other Ways You Can Save on Solar Panels?
We’ve gone over the ways that the solar panel tax credit can help you save money on the installation of your system. But, it’s important to remember that it is far from the only way that solar energy can save you money.
For one thing, there are lower energy bills. With a large solar system, you offset a huge amount of your monthly energy cost. If you produce a surplus, then utility companies will even compensate you for it in the form of an energy credit.
This is known as net metering and it’s another great way to get your solar system to quickly pay for itself. On top of that, you can also often save money through local laws, or tax credits, unrelated to the all-encompassing federal one.
Keep in mind that this is just the tip of the iceberg when it comes to solar savings. Make sure to check out this helpful article for more information on solar savings.
Want More Content? Keep Reading
We hope this article helped you learn more about the solar panels tax credit. As you can see, this is a great way to save thousands of dollars on your new solar system. But, it’s important to act soon if you want to take advantage of it.
Remember that it won’t be around in the next few years. So, call your solar system provider today! Just make sure that you follow the advice in this article to make sure that you’re eligible.
Did you enjoy this article? If the answer is yes, then you’re in the right place. Keep exploring to find more topics that you’re sure to love.