The Federal Investment Tax Credit — or Solar Tax Credit — allows homeowners to deduct up to 26% of solar energy system costs from their federal taxes.
You will get a dollar-for-dollar reduction on your federal tax liability for up to 26% of your total solar and battery storage system cost during 2022. This tax credit will decrease in 2023 and disappear in 2024. You can take advantage of the tax credit if your residential solar panel system is installed and producing energy by 2023, which you would claim when filing your upcoming taxes in 2024. Contact our team today to see how much you can save with your tax credit!
What is the solar tax credit?
The solar tax credit was started by the Energy Policy Act of 2005 and has been consistently extended to incentivize more homeowners and businesses to go solar. This act has triggered enormous growth in the solar industry. Since 2005, solar in the US has grown to power more than 18 million households (according to energy.gov) throughout the nation, employed more than 250,000 solar professionals and not to mention the enormous environmental impact. This tax credit incentivizes homeowners to make a financially sound investment into energy independence and clean energy production.
How does the tax credit on solar work?
If you purchase a solar panel system and have it installed through a loan, cash or personal line of credit, you can claim 26% of the total system cost on your taxes during 2022. If you purchase solar in 2023, your tax credit goes down to 22% of the entire system cost and 0% in 2024. You’ll want to ensure you allow your installer enough time to install your system before the year ends so you can claim the credit. For easy math’s sake, let’s say your solar system costs $25,000. 26% of that would be $6,500. You’d receive $6,500 back on your federal taxes.
As long as you own, not lease, the solar panel system, you will be eligible for the tax credit. We always recommend consulting a tax professional to see how the tax credit could benefit you.
The tax credit does apply to a backup battery as well. You can even use your tax credit towards necessary upgrades to get solar-like roof repairs or electrical panel upgrades.
When does the solar tax credit end?
The ITC most recently was set to expire in 2022; however, the COVID relief bill extended the credit to 2024. The tax credit was initially set to end in 2007 but has been extended ever since with varying percentages of the system cost. We hope to see extensions continue well beyond 2024!
How do I claim the tax credit?
Your installer will have the necessary documents to help you file for the tax credit. Specifically, you will need to fill out the Solar Tax Credit Form.
If you’ve received any additional rebates or grants on your solar system, you would need to exclude the rebates from the system’s total cost and claim the tax credit on the remaining portion.
Will I get a check back from the government if I install solar?
As of now, this amount only goes towards your federal tax liability.
How many times can I claim the solar tax credit?
The solar tax credit can be used once per system installed. You will want to consult with your tax professional if you claim the tax credit on more than one system or home.
What if I don’t have enough tax liability?
You will want to see if owning a solar system is right for you. Leasing your solar may be a better option if you can’t claim the tax credit because you don’t owe enough federal tax. However, you can claim the tax credit amount over multiple years. So if you don’t have enough federal tax liability for this year, it’s possible you could claim the remainder of the credit next year.
Before consulting with a tax professional, contact Pineapple today for a free quote to see how much you can claim by going solar!