Solar panels are known to everyone as a great way to save money on your electric bill. However, many people don’t realize they can also get a tax credit for installing new solar panels or upgrading existing ones. The solar tax credit is one of the best incentives available for homeowners who want to make their homes more sustainable while saving money on their energy bills. This article will cover everything you need to know about the solar tax credit and how it can help you save money.
What is a Solar Tax Credit?
A solar tax credit refers to a dollar-for-dollar reduction in the amount you owe on your taxes. It’s like getting a rebate for installing solar panels, but instead of getting cash back, you get to reduce the amount of money you owe on your taxes.
This can be applied to residential and commercial solar panel systems. It’s not just for homeowners—businesses that install solar panels, too, can take advantage of this federal incentive program.
Your solar tax credit depends on how much you spend installing solar panels. It also depends on whether or not you own or rent your home and what type of system you install. In general, the solar tax credit reduces your federal income tax by 30 percent of the cost of your solar system.
For example, spend $10,000 on a solar panel system for your home. The solar tax credit will eventually reduce your federal income taxes by $3,000.
Why Would Homeowners Need Solar Tax Credit?
To save money on electricity bills.
This is the most apparent reason, and it’s what most people think of when they hear solar tax credits. If you install a solar energy system, you can reduce your monthly energy bill by as much as 30 percent or more, which means you’re saving money every month. While it may not seem like a lot of money initially, it can add up quite a bit over time. In fact, according to the EnergySavers website, solar panels can pay for themselves within 5 to 10 years, depending on where you live and how much energy you use.
To get a break on your property taxes.
Many states offer property tax breaks for homeowners who install solar energy systems. The exact amount will vary by state, but it’s typically around 10 percent or more. This added benefit will help offset some upfront costs of installing solar panels on your home. Additionally, as the price of solar panels continues to drop, you will be able to recoup more and more of your initial investment over time.
To promote clean energy production.
This is one reason many consider when deciding whether or not to go ahead with a solar panel installation project at their homes or businesses. With so many people trying to cut down on their carbon footprint and reduce their use of fossil fuels like oil, coal, and natural gas, installing a solar panel system can help them do just that! The solar panels will produce clean energy that can be used to power your home or business.
Who Qualifies for a Solar Tax Credit?
We know receiving the solar tax credit is exciting, but you must be qualified to receive these. To qualify for receiving the solar tax credit, you must meet all of the following requirements set by the U.S. Department of Energy:
- You must be the owner, not a renter of your home.
- Your solar panel system must be new or have never been used before.
- You must own the solar panels that you install.
Although some homeowners lease their solar systems through third-party companies, the vast majority of panels are installed by the homeowner. While leasing may be the best option, a third party can claim the tax credit for installing solar panels.
Unlike those who lease their panels, homeowners that buy them outright or finance the purchase with a loan may be eligible for tax credits.
How Long Does the Solar Tax Credit Last?
In December 2020, Congress extended the ITC for another five years. This will provide a 26% tax credit for systems installed in 2020-2022 and 22% for 2023 installations. The tax credit dedicated to energy-efficient home improvements will expire in 2024 unless Congress renews it.
Why Choose Solar Tax Credit?
With the solar tax credit, you can save money on your taxes and help protect our environment. It’s a win-win situation! In addition to saving you resources and money on your monthly electric bill, a solar system could reduce or eliminate your utility bills. Solar tax credits help provide a solid financial foundation for installing solar. The IRS has created a unique calculator that can help you determine the potential savings from installing a solar system. This will give you an idea of how much you could save on your taxes and how much money it takes to repay your loan.
Solar Tax Credit vs. Other Credits
The solar tax credit is one of the most attractive benefits of installing a solar system on your property. The 30% tax credit is tied to the installation cost, meaning that if you spend $10,000 on a new solar system, you’ll get a $3,000 tax credit from the federal government.
This is unique in reducing your taxes instead of increasing them. This can be especially valuable for people who make too much money for other credits but still want to save on their energy bills by going solar.
Benefits of Solar Tax Credit
The solar tax credit has several benefits that make it worth your while. First, you can use the credit to offset income taxes, which means that you’ll pay less in taxes each year on your solar system.
Second, the 30% federal tax credit is valuable even after you sell your home—if you ever decide to move out of state or sell your property for any reason, the value of the solar installation will still be included in its sales price.
Third, the solar tax credit makes it easier to afford a solar system. While the 30% federal tax credit will be reduced if you make more than $25,000 annually, it can still help reduce your monthly energy bills.
Finally, the solar tax credit lets you save money by going solar without having to pay upfront costs—you just need to wait until after the installation is complete before receiving your credit.
The solar tax credit is indeed a great way to save money on home energy costs while reducing your carbon footprint. Even without the tax benefits, going solar can save you up to 70% on your electricity bills—but with the 30% federal tax credit, this number jumps even higher.
Suppose you’re not sure about going solar. In that case, you can still benefit from the 30% federal tax credit by purchasing a solar power system for someone else—so consider gifting one to a friend or family member this year!