Did you know that the US federal solar credit scheme should have expired at the end of 2006? However, it was so successful that Congress extended it several times.
That includes the most recent bill passed by Congress in December 2020. With this, the tax credit for home solar photovoltaic (PV) systems is available up to 2023.
So, if you haven’t yet, now’s the best time to get your very own solar PV system.
We’ll cover the most critical facts you need to know about this federal tax credit, so be sure to read on.
What Is the Federal Solar Credit?
The federal solar credit is a credit you can claim on your federal income taxes. It also goes by the name solar investment tax credit (ITC).
The ITC is a dollar-for-dollar reduction applied to a portion of your solar PV system’s cost. So, the credit will reduce the federal income taxes you owe if you invest in qualified equipment.
How Much Is the Credit?
If you install a residential solar PV system on or before December 31, 2022, you can get a 26% federal tax credit. That then drops to 22% for home solar installation projects that commence in 2023.
The residential tax credit will then expire at the start of 2024.
How Do You Qualify for the Solar ITC?
The most crucial requirement is that you’re one of the 140+ million taxpayers in the US. After all, it’s a tax credit, so if you don’t pay federal taxes, you don’t have anything to deduct the credits from.
Another requirement is to install the solar PV system in your primary or secondary home in the US. That means you can also get tax credits for your vacation home, provided you don’t make any profit from it. If you do, you’d need to apply for a business tax credit on that solar-powered vacation property.
You must also be the owner of the system itself, from the solar panels down to the inverters and wires. For the same reason, leased equipment is often not eligible for the solar ITC.
Are There Other Solar Incentives Aside from the ITC?
Yes! Aside from the federal government, some state governments also offer tax credits.
A perfect example is New York, where residents can get a 25% state tax credit. That applies to the cost of new solar equipment. However, there’s a cap on the incentive, set at $5,000.
Some states also have net-metering policies and solar renewable energy certificates (SRECS). According to the Blue Raven Solar company, Ohio is an excellent example of where you can get both. Don’t worry, as either incentive won’t impact the federal solar tax credit you can get.
Net-metering lets you offset your utility costs if you generate surplus solar energy. On the other hand, SRECs allow you to monetize the surplus solar power your PV system produces. So, if you live in Ohio or another state where you can get both, hire a local installer who can help you apply for them.
Take Advantage of All These Solar Incentives
Now that you know what the federal solar credit is and how it works, it’s time to apply for it. Remember: you only have up until the end of 2022 to take advantage of the 26% ITC. That’s way better than the following year’s 22% credit, so, as early as now, start planning for your solar PV system.
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