As a homeowner, you might love the idea of installing solar panels. After all, what’s not to love? Solar panels can dramatically reduce your energy costs and environmental footprint; they can also send your property value soaring with very little maintenance. But you might be worried about the added cost of installing solar panels. Enter the Federal Solar Tax Credit, a program designed to assist homeowners with the financial aspect of going solar. Read on to find out more about the Federal Solar Tax Credit and how it can help you go solar without breaking the bank.
Note: This article is for informational purposes only. Please contact your CPA or financial advisor for tax advice.
The Federal Solar Tax Credit Explained
What Is the Federal Solar Tax Credit?
First, what exactly is the Federal Solar Tax Credit? Otherwise known as the federal residential solar energy credit, homeowners can claim this tax credit on their federal income taxes. The credit is designed to cover a percentage of the cost of a solar photovoltaic (PV) system for your home. Like other tax credits, the Federal Solar Tax Credit is a dollar-for-dollar reduction in the amount of income tax you owe for an applicable year. The current law allows for a 26 percent tax credit for systems installed between 2020 and 2022, and a 22 percent credit for systems installed in 2023.
What Expenses Are Included in the Credit?
So, what does the credit pay for? Per the Office of Energy Efficiency & Renewable Energy, the following expenses are included in this tax credit:
- Solar PV panels
- PV cells used to power an attic fan (note that the credit does not cover the fan itself)
- Contractor labor costs for your home
- Necessary system equipment, including wiring, inverters, and mounting equipment
- Energy storage devices that are charged exclusively by the associated solar PV panels (these are subject to installation date requirements)
- Sales taxes on eligible solar expenses
Am I Eligible for the Federal Solar Tax Credit?
Are you ready to take advantage of this helpful tax credit? To be eligible, your solar system must generate electricity for a home in the United States. The system must also be completely installed and placed in service during the tax year; for example, if you file for the credit with your 2021 taxes, the system must have been installed in 2021. There are a few other criteria that you must meet to be eligible:
- The solar system is located at your primary or secondary residence in the United States, or for an off-site community solar project
- You own the solar system
- The solar system is new or being used for the first time
Interestingly enough, you don’t necessarily have to be a homeowner to claim the tax credit. For example, a condo owner or a tenant at a cooperative housing corporation (co-op) can be eligible if they contribute to the costs of the system. However, you cannot claim the credit if you are, for example, a renter whose landlord paid for the system’s installation.
For more information on the Federal Solar Tax Credit, check out the Database of State Incentives for Renewables and Efficiency entry under the “Residential Renewable Energy Tax Credit” at www.dsireusa.org. You can also download several residential and commercial tax credit fact sheets for a more detailed explanation of the credit. Ultimately, this credit can help make solar energy accessible for homeowners, regardless of the household budget.
If you’re wondering how solar panels could benefit your home, your business, your wallet, or the environment, contact ArrowPoint Solar today. Our expert engineers have helped more than 1,000 homeowners and businesses in Missouri, Oklahoma, and Arkansas save money and reduce their carbon footprints by switching to solar energy. We’re proud to be the leading experts in solar and LED energy in the Ozarks. To learn more about the value of solar energy and how it could benefit you, request a free solar consultation today.