Are you thinking of installing solar panels in your home?
Well, there’s no reason why not. Going solar means that you can enjoy less dependence on the grid and save yourself money every month. You never have to worry about whether utilities are raising prices.
Not only that, but the government gives a solar tax credit to residents. This can either lower or eliminate the amount of income tax that you owe the IRS on your solar bill payment.
Want to learn more? So keep reading because we’re going to break down all details about the solar tax credit.
What Is a Solar Tax Credit?
The Solar Tax Credit is also known as the federal Investment Tax Credit (ITC). It is a tax credit created to incentivize individuals and businesses. It encourages them to install renewable energy systems in their homes and businesses.
The ITC is an effective way to reduce the cost of Solar Electric (net metering) and Solar Thermal systems. It is available for both residential and commercial solar projects and can cover up to 30% of the cost. You can use the credit as a direct cash payment from the government or businesses can take the credit to reduce their taxes.
The government structured the ITC so it phases down over three years beginning in 2020. After 2021, the tax credit will have decreased to 26%, thereafter 22%, and in 2022. The credit then steps down to zero for residential investments and remains at 10% for non-residential investments.
How to Qualify for the Solar Tax Credit
To qualify for this tax credit, a taxpayer must meet certain requirements. This includes having a valid solar system installed and operational at a location located in the United States.
The time of installing solar panels should be before December 31, 2021, to qualify for the full credit value. Then, you can apply the credit to any tax year after 2016.
In addition, you must use the system as either the “primary source” of electricity or as a form of “self-generation” at the principal place of residence. A taxpayer can save up to $2,000 of the purchase price on their taxes with the solar tax credit. But this will depend on the individual’s tax liability at the time of filing. Most reputable tax filing firms offer the resources needed to determine your tax liability and eligibility status. Therefore, you can find out if you qualify, and take advantage of free tax filing all at the same time.
What Is Covered by the Tax Credit?
The solar tax credit covers solar panels or photovoltaic systems and solar-powered water heaters. They also cover fuel cells, geothermal heat pumps, and wind turbines.
Under the credit, willing taxpayers are eligible to receive up to 30% of the cost of a solar energy system, including installation and other related expenses. This credit may also include items such as inverters, balance-of-system components, structural supports, and permits.
The credit applies to both purchase and lease options and is valid up to the end of 2021. The tax credit received cannot exceed the year’s tax liability, and the unused portion may be carried over into future years.
How Long Can the Credit Be Claimed?
The solar tax credit is a federal tax credit that can be claimed when purchasing a solar energy system for your home, business, or other forms of property. The credit can be used to offset the cost and makes solar energy more affordable for homeowners.
For residential property owners, the credit is limited to the owner’s tax liability. However, unused credits can be carried over for a maximum of five years as long as the system is installed before the end of 2021. Commercial property owners can take the credit against any unused tax liabilities and receive the full credit up to 2022.
It all depends on the tax rate. The credit could be worth up to thousands of dollars depending on the size and type of the solar energy system.
How Can I Claim the Credit?
To claim the credit, you must fill out form 5695 during tax time. It requires details of the installation cost, date of installation, and other information. You must also have proof of your installation expenses, such as an invoice detailing the installation costs.
Once you have everything in order, you can file the 5695 form alongside your other tax forms. You can expect that your solar credit will be applied to your total tax amount.
How Can I Use the Credit With Other Incentives?
You can stack this credit with other incentives, such as local or state resources. This may reduce the total cost of a solar system even further. Incentives can range from outright grants or rebates, to lower interest rates on solar loans or even additional tax credits provided by the state or local municipality.
Benefits of the Solar Tax Credit
The solar tax credit also has other benefits. Some of them are listed below:
Lower Upfront Costs
The federal program offsets the high upfront costs associated with installing solar panels. It ensures that home and business owners don’t have to pay as much out-of-pocket.
This tax credit helps to lower the cost of solar power installation by thousands of dollars. This makes it more affordable than it would be otherwise. More people can take advantage of the cost savings that come with renewable energy.
Long-Term Savings
When people install solar panels, it can lead to long-term savings. This is because, in addition to decreasing electricity costs, homeowners and business owners can also benefit from the ITC.
Helps Reduce Global Warming
The tax credit is an effective tool for combating global warming. As the increase in solar energy production reduces our dependence on fossil fuels which are heavy contributors to greenhouse gas emissions.
Experience the Power of Solar Energy Now
The solar tax credit is an excellent opportunity for households to save money and reduce their ecological footprint. So if you’re considering going solar, it’s important to read up on the regulations. You can even speak with a tax professional to better understand if you can benefit from this credit.
Take action today to start saving money and protecting the environment through solar energy.
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