If you’re a homeowner or business owner in the United States, you may have heard about the Solar Tax Credit. It’s a federal tax credit that allows individuals and businesses to deduct a portion of the cost of installing solar panels from their federal income taxes. In this article, we’ll look at what the Solar Tax Credit is, how it works, and why it should matter to you.
What is the solar tax credit?
The Solar Tax Credit, also known as the Investment Tax Credit (ITC), is a federal tax credit that allows homeowners and businesses to deduct a portion of the cost of installing solar panels from their federal income taxes. The credit was introduced in 2005 as part of the Energy Policy Act and originally expired in 2007. However, it has been extended several times and is currently scheduled to remain in effect until 2024.
The Solar Tax Credit allows individuals and businesses to deduct 26% of the cost of installing a solar energy system from their federal income taxes. This means that if you spend $10,000 on a solar panel system, you can deduct $2,600 from your federal income taxes. The credit applies to both residential and commercial properties, and there is no limit to the amount of credit you can claim.
How does the solar tax credit work?
To claim the Solar Tax Credit, you must have a solar panel system installed on your property. The system must be brand new and installed by a professional installer. You cannot claim credit for a used system or one you installed yourself.
Once your solar panel system is installed, you will need to file IRS Form 5695 with your federal income tax return. This form will allow you to claim the Solar Tax Credit. It will ask you to provide information about the cost of your solar panel system and the amount of credit you are claiming.
If you cannot use the full amount of the credit in the year you install your solar panel system, you can carry the remaining balance forward to future tax years. However, the credit is scheduled to decrease over time. In 2020, the credit was 26%, but it will decrease to 22% in 2023 and expire for residential properties in 2024 (but remain at 10% for commercial properties).
Why should the Solar Tax Credit matter to you?
The Solar Tax Credit can provide a significant financial incentive for homeowners and businesses to invest in solar energy. By allowing individuals and businesses to deduct a portion of the cost of installing a solar panel system from their federal income taxes, the credit can help offset the upfront costs of installing solar panels.
In addition to financial benefits, solar energy has environmental benefits. Solar energy is a renewable source of energy that does not produce greenhouse gas emissions, air pollution, or water pollution. By investing in solar energy, individuals and businesses can reduce their carbon footprint and mitigate climate change.
If you need more information about your Solar Tax credit contact Brenda and CA Solar Expert.