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Residential Solar Systems Can Help You Save Money

Top Questions About Federal Solar Tax Credit

Since residential solar systems help safeguard the environment, state and federal governments provide tax incentives to encourage homeowners across the country to switch to solar energy. As a result, the demand for these systems has dramatically increased as hundreds of thousands of solar panels pop up on the roofs of American households year after year.

Residential Solar system on roof

Most Asked Questions About Federal Tax Credit for Solar Energy Systems – Answered!

What Does a Tax Credit Mean?

A tax credit refers to the dollar-for-dollar reduction in the amount of money that taxpayers would otherwise owe. While tax deductions reduce the amount of your taxable income, tax credits lower the actual amount of tax you owe.

What Is the Federal Solar ITC?

The federal solar Investment Tax Credit (ITC) is essentially granted as a reward for taxpayers who decide to purchase solar energy systems for their residential, commercial, or utility-scale properties. Furthermore, the tax credit is applied to their federal income tax return debt, and the credit is equal to a percentage of the cost of the solar equipment.

The Energy Policy Act of 2005 initially set the federal solar ITC to expire in 2007. However, its success in helping the U.S. transition to a renewable energy economy and overall popularity prompted Congress to extend its expiration date multiple times.

From 2016 to 2019, the tax credit remained at 30% of the overall cost of the solar power system. At present, owners of brand-new residential and commercial solar power systems can deduct around 26% of the total cost of their system’s installation from their taxes.

This most recent federal solar ITC extension is available through 2022 to all homeowners across the country. Furthermore, taxpayers in all income brackets are eligible because the ITC program sets no income limit.

What Does the ITC Cover?

Besides covering the cost of solar panels or PV cells used to power an attic fan, the 26% ITC also covers labor costs for installation, such as inspection costs, permitting fees, and developer fees. Additionally, it covers sales tax on eligible expenses, home batteries that your solar PV panels charge exclusively, and other necessary balance-of-system equipment, including wiring, inverters, and mounting hardware.

How Can Other Solar Incentives Be Used in Combination With Federal Solar ITC?

Besides the federal solar ITC, you may also benefit from other solar incentives such as state-sponsored programs and rebates. Although some of these incentives may affect the federal solar ITC, you can still lower the cost of going solar by combining some of these financial incentives.

Rebates From Your Electric Utility Company to Install Solar

Through an exemption in federal law, most subsidies provided by your utility company to you to install a solar power system are excluded from your income tax returns. In such cases, the utility rebate for solar installation is subtracted from the costs of your solar power system before you can calculate your solar ITC.

Rebate From Your State Government

Rebates from your state government typically don’t lower your federal solar ITC the way utility rebates do. For instance, your state gave you a one-time rebate of $1,000 for a system you installed before December 31, 2022. If the total cost of installation was $18,000, you could claim the amount of $4,680 as your federal solar ITC by multiplying 0.26 by 18,000.

State Tax Credit

It’s important to note that getting any state tax credit for going solar won’t decrease your federal tax credits (and vice-versa). However, since you have less state income tax to deduct, the taxable income you report on federal returns will be higher than it otherwise would’ve been.

Furthermore, the Tax Cuts and Jobs Act of 2017 capped the deduction for state and local taxes at $10,000. This new law may affect how a state tax credit impacts federal taxable income. As a result, claiming a state tax credit means having the amount of the state tax credit effectively taxed at the federal tax level.

Payment for Renewable Energy Certificates

Any time your utility company or other buyers give you an incentive or cash in exchange for renewable energy certificates, their payment will likely be treated as taxable income that increases your gross income. However, it won’t reduce your federal solar ITC.

finger pressing on a green key with savings ahead written on it

How Do I Know If I’m Eligible to Claim the Federal Solar ITC?

Date of Installation

You installed your solar power system between January 1, 2006, and December 31, 2023.

Location

You installed your solar power system on your primary or secondary residence in the country or for an off-site community solar project. In the case of an off-site community, the electricity generated is credited against the amount of electricity you use in your home, and it doesn’t exceed this amount.

Original Installation

Your solar power system is new or being used for the first time. Moreover, you can claim the federal solar ITC only on the original installation of your solar power system.

Ownership

You own the solar power system, whether you pay for it through a loan or bought it outright. However, you won’t be able to claim the tax credit if you sign a lease or power purchase agreement (PPA) with a solar company. In such arrangements, the solar company owns the system and not you.

For How Long Can I Claim the Solar ITC?

Since the 26% ITC isn’t refundable, the IRS won’t refund you with a check for claiming the federal solar ITC if you don’t owe any taxes during the given calendar year. However, you can still claim the solar ITC even if your tax liability isn’t enough to claim the entire credit in a year. According to Section 48 of the Internal Revenue Code, you can carry over the excess credits for up to the next five years if the tax credit is still in effect.

an engineer checking a Residential Solar system

Do You Have More Questions About Residential Solar?

If you’re looking to install a solar energy system to lower your energy costs, do it now before the federal solar ITC decreases in years to come. You’ll get the full benefits if you act quickly.

At SuperGreen Solutions, we understand that finding the right green technology solutions can be challenging. For this reason, our dedicated team of experts is here to provide you with access to a wide range of residential options for green energy.

Additionally, we offer strategic guidance the help you sort through the options until you find the right combination of technologies for your home. Since a true partner doesn’t walk away after installation, expect us to give you our ongoing support. Contact us today to learn more about our products and services.

 

16A Bel Air South Parkway

Bel Air, Maryland 21015

1-888-9-SuperG

info@supergreensolutions.com

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