In this this article, I’m going to go over the solar federal tax credit, what it is, how to get it, and what it covers. There is an update to this video as of Aug 2022. The tax credit will remain at 30% until 2032 before dropping to 26% in 2033, then drop to 22% in 2034, and expire in 2035.
For many people solar power is too expensive. With this in mind the solar federal tax credit was created to help bring down the cost of going solar. There’s a lot of confusion out there about what the tax credit is and how you get it. The solar federal tax credit also known as ITC or investment tax credit, is a dollar for dollar reduction in the amount of income tax you owe. This means if you owe any income tax, you can use your solar tax credit to pay some of, or all of what you owe, depending on how much your solar tax credit is and how much you owe in taxes.
The tax credit was 26% in 2020. This means you could have gotten a tax credit worth 26% of the total cost to install your system. This includes the cost of solar panels, wires, mounting equipment, inverters, and labor. The exact cost of these things depends on the amount of solar power you’re able to collect and the amount of electricity you use so the cost will change from home to home. The tax credit was supposed to drop to 22 percent in 2021 and expire in 2022. Luckily the solar tax credit was extended. This means in 2022 the tax credit stayed at 26% instead of dropping to 22 percent and won’t drop to 22% until 2023 and is set to expire in 2024. This gives people more time to take advantage of going solar, however now is still a great time to go solar. If you wait too long you’ll miss out on huge cost savings, which means it’ll take longer to pay off the system.
Putting it all together if you go solar while the tax credit is at 26% and your system cost was thirty thousand dollars, you’ll have saved seven thousand eight hundred dollars because you can deduct that amount from your federal income tax. So, let’s say you owe six thousand dollars in federal income tax, you could pay it all using your solar tax credit. If your solar tax credit is more than you owe in income tax you could roll it over to the following year for up to 20 years, so in this example you would still have $1800 to deduct the following year.
Even if you don’t owe any federal income tax you may still be able to get the tax credit. The reason is that for most people, your employer is collecting federal income tax from your paycheck throughout the year. Even though you may get a return at the end of the year and appear to not be able to use the solar tax credits since you don’t owe anything you do have income that is being taxed and that means you can still use the solar tax credit to pay your income tax as long as you qualify.
To qualify for the tax credit you must own your home, which means most apartments are excluded. You must also be installing a new solar system meaning the tax credit cannot be used on an existing solar system and the last thing needed to qualify is you must own the system. You won’t qualify for the tax credit if you rent or lease your solar system even if you own your home. To make sure you qualify, speak with your accountant first. If you do qualify you’ll simply have to fill out a tax credit form for each year that you have money left from the solar tax credit left to deduct. There’s no limit to how much you can get on the tax credit and you could also use it for a battery system as well as if you install the solar system yourself.
Some states offer additional incentives to help you save even more money and will even allow you to include the cost of a new roof and upgraded electrical system if it’s needed to get your home running on solar.
If you’re interested in getting solar for your home check out EnergySage. They connect you with solar installers in your area and won’t bug you with dozens of phone calls or knocking on your door. They also make sure each provider is licensed, insured, and has been given positive reviews from their customers.
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