It has never been a better time to go solar!
26% federal tax credit still available
Financial incentives to install solar were boosted in 2015 when Congress approved the 2016 federal spending bill and extended the solar panel tax credit. The bill contained a 5-year solar tax credit extension, which makes solar much more affordable for all Americans.
After the national extension of the solar Investment Tax Credit (ITC) through 2023, it has never been a better time to go solar! This amazing credit cuts the cost of your overall solar installation by 26 percent! Just remember that in order to qualify for the federal ITC, you need to own your solar system, which means a third party lease or Power Purchase Agreement (PPA) does not qualify for the tax credit.
What is the 26% solar tax credit?
The federal solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. That means your installation is automatically at a 26% discount! The ITC applies to both residential and commercial systems, and there is no limit on its value. Thanks to the ITC, the average cost savings on a solar installation in 2017 was over $5,000!
What does the federal solar tax credit extension mean for the solar industry?
The federal ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. A series of extensions pushed the expiration date back to the end of 2016, but experts believed that an additional five-year extension would bring the solar industry to its full maturity. With an additional extension signed into law in late December 2020, the tax credit is available to homeowners in some form through 2023.
Here are the specifics:
- 2021-2022: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their federal taxes.
- 2023 onwards: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their federal taxes.
- 2024 onwards: Only new commercial solar energy systems can deduct 10 percent of the cost of the system from their federal taxes. As of today, there would be no federal tax credit for residential solar energy systems starting in calendar year 2024 and on.
- Furthermore, in previous years, owners of new solar energy systems were not allowed to claim the tax credit until their system was operational. Now, owners are allowed to claim the tax credit as soon as the construction of the system is complete, as long as it is operational by December 31, 2023.
Do I qualify for the solar panel tax credit?
As long as you own your solar energy system, you are eligible for the solar tax credit. You claim the solar tax credit when you file your yearly federal tax return, by filing IRS Form 5695 in addition to the typical IRS Form 1040. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. However, keep in mind if you sign a lease or PPA with a solar installer, you do not own the system, and therefore cannot receive the tax credit.
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