Are you thinking about installing solar panels on your home or business? Falling equipment costs and attractive financing deals make solar energy more affordable than ever. Did you know you can claim a solar energy tax credit to help reduce the cost even further?
How does solar energy help you save on your taxes? Here’s what you need to know about how to switch to solar and how to claim the solar energy tax credit.
What Is the Solar Energy Tax Credit?
The federal solar investment tax credit (ITC) was set up under the Energy Policy Act of 2005. It was originally due to expire in 2007, but it was so popular that Congress has extended it several times.
Until 2019, the ITC allowed residential and commercial property owners to deduct 30% of the cost of installing a solar energy system from their taxes. In December 2020, Congress extended it for another two years, at a reduced rate of 26%. From 2023 the rate will fall to 22%, and from 2024 it will only apply to commercial solar energy systems at a rate of 10%.
How Much Does Solar Energy Cost?
Prices for solar energy systems have fallen sharply in the past few years, and government incentives cover some of the cost.
The initial installation can cost anywhere from $15,000 to $50,000, depending on the size of your property and how much of your energy consumption you want to cover. That means you can potentially save between around $3,900 and $13,000 on your federal taxes.
After that, your energy bills will be lower as you’ll be using your own solar power rather than consuming electricity from the power grid.
How to Switch to an Eligible Solar System
Once you’ve got quotes from several solar installers like Blue Raven Solar, arrange for an installation and inspection to connect your energy system to the power grid.
As long as you own the system you will be eligible for the solar energy tax credit. If you lease the equipment from a solar installer, they will receive the credit. You can also claim for a property even if it is not your primary residence, as long you own it and live there part of the year.
How to Claim the Solar Energy Tax Credit
To claim the reduction solar energy taxes, you need to complete the IRS Form 5695, Residential Energy Credits, and the IRS Schedule 3/Form 1040.
If your federal tax liability for the year is lower than the total value of the ITC credit, you can carry over the remaining credit into the following tax year. There is no cap on the value of the credit.
As well as the federal solar energy tax credit, you could also be eligible to receive state tax allowances. Utilities like Commonwealth Edison and some municipalities also offer solar incentives.
Save on Your Taxes By Going Solar
Going solar not only reduces your energy bills and your carbon footprint. With the solar energy tax credit, it can also save you thousands of dollars on your taxes.
For more tips on saving money and improving your finances, keep reading the blog for more finance posts.