How does solar panel tax credit work | Solar panel wholesaler

How does solar panel tax credit work

If you’re considering installing solar panels on your business or house, you’ve almost certainly heard of the federal solar tax credit.

The federal government is granting a federal solar tax credit to offset the expenses of solar panel installations for commercial firms and private households across the United States.

Although the solar tax credit was slated to expire in 2020, federal legislation has extended it as a financial incentive to promote green energy, ensuring that it remains a viable and beneficial option for anyone considering going solar.

Here’s what you need to know about the solar tax credit.

What is the solar tax credit?

The solar tax credit was established in 2005 with the goal of making solar energy more affordable for American homes by lowering their tax liability on the purchase and installation of solar energy. The solar investment tax credit (ITC) was extended until 2015; later, Congress passed the 2016–2019 federal spending plan, which extended the solar panel tax credit further by keeping the 30% tax credit for taxpayers who purchased and installed solar panels by December 31, 2019.

However, when Congress passed a large omnibus spending bill — including $900 million for coronavirus relief — another solar tax credit extension was included. Residential solar tax credits will remain at 26 percent from 2020 to 2022 but will reduce to 22 percent in 2023 under the new legislation. Unless Congress acts to extend the credit, it will expire in 2024.

Solar projects in all sectors — residential, commercial, and industrial — that begin construction between now and 2022 are eligible for the 26% tax credit. And, while the tax credit for homes will expire in 2024, a 10% tax credit will be available beginning in January of that year for utility and commercial markets.

How much is the tax credit worth?

A 30% tax credit is available if you install a solar photovoltaic system by December 31, 2019. However, for those implemented between 2020 and 2022, the credit is reduced to 26%.

The credit decreases to 22% for systems installed in 2023 and completely expires in 2024 unless Congress renews the program.

What are the eligibility requirements for the solar energy credit?

You may claim the credit only once for the equipment’s first installation.

Solar PV systems must be owned by you and installed on your primary or secondary residence. (In some instances, an offsite community solar project qualifies as well.) If you lease solar panels, you are not eligible for the tax incentives.

However, there is no cap on the amount that may be claimed. Additionally, if you financed the system through the manufacturer and are contractually bound to pay it in full, you can claim the credit on the system’s entire cost.

You do not even have to be linked to the electric grid to qualify for the federal solar tax credit, but there are clear financial benefits to doing so.

Final Words

As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can rollover credits into future years. There is no income limit on the ITC program, so taxpayers in all income brackets may be eligible.

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