It’s time to let the sun do some of the work! As part of the federal government’s plan to incentivize homeowners to make a switch to solar energy, they are offering Federal solar tax credits. You can now make the important transition to renewable energy and save money in the process.
However, this credit is only available until the end of 2023 unless it’s extended by Congress. So If you are ready to invest in a solar energy system for your home, the time is now!
Keep reading for everything you need to know about the federal solar tax credits.
What Is the Solar Tax Credit?
The federal government offers a solar tax credit to homeowners and business owners when they purchase and install solar panels and a solar power system (also called residential solar photovoltaics, or PV).
The solar tax credit was created in 2005 to make solar transitions more affordable for Americans. When the solar investment tax credit expired in 2019, Congress passed another solar tax credit extension that applies the tax credit to 26% through 2022 and then drops to 23% in 2023. The credit expires in 2024 unless Congress renews it.
Am I Eligible for the Solar Tax Credit?
To be eligible for the solar tax credit, you must meet certain criteria.
The installation date of your home solar system must be between January 1st, 2006, and December 31, 2023. Additionally, the system must be installed at your primary or secondary residence, or business. It must also be a new installation—only new solar systems or those being used for the first time can be claimed.
How is the Solar Tax Credit Different From a Tax Rebate?
The solar tax credit is not a tax rebate. The 26% tax credit on purchased and installed solar panels is a dollar-for-dollar reduction on any taxes owed. If you do not owe taxes, there is no refund to you for the amount of the credit. You can, however, apply the credit to the following tax year.
This is different from a tax rebate that is payable to you even if you owe no taxes.
For example, if you spent $20,000 on a solar panel system, you can claim 26%, or $5,200, of that amount on taxes owed.
How Does the Solar Tax Credit Benefit You?
Solar panel installation professionals like this company help people make the important transition to renewable energy. Here are some of the long-term benefits of installing a solar panel system:
- a substantial reduction or elimination of energy costs
- send used energy to the grid in exchange for credits on utility bills
- increases property value
- additional state tax credits on top of the federal tax credit
How to Claim the Solar Tax Credit
If you purchase a solar energy system for your home or business, you are eligible for the solar tax credit. When you file your annual federal tax return, let your accountant know about the solar panel installation. Those who file their own taxes can use File Tax Form 5695 to claim the credit.
Federal Solar Tax Credits
The switch to solar energy is a smart investment. And now, with the federal solar tax credits offered, the best time for the installation of a solar panel system is now.
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