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Want to take advantage of the maximum amount of the solar tax credit?
What is the solar tax credit?
The federal solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 26% of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value. Thanks to the ITC, the average Green Day Power shopper saves thousands of dollars on the cost of going solar in 2020.
The history of the federal solar tax credit or ITC.
First enacted in 2005 as part of the Energy Policy Act of 2005, the solar tax credit began as a tax credit of 30 percent of the cost to install a solar panel system with a maximum credit of $2,000. In 2008, the ITC was reauthorized, and the cap was lifted. In 2015, the ITC was extended, and scheduled to “step down” over time.
How does the federal solar tax credit work?
The system must be placed in service during the tax year and generate electricity for a home located in the United States. A solar PV system must be installed before December 31, 2019, to claim a 30% credit. It will decrease to 26% for systems installed in 2020 and to 22% for systems installed in 2021. The tax credit expires starting in 2022.
Who is eligible for the federal solar tax credit?
Anyone who pays for a solar panel installation on a home or business they own can claim the solar tax credit, as long as they have tax liability in the year of installation. What this means is, you have to owe taxes during the same year as the installation in order to qualify for the solar tax credit.
You can’t take a credit larger than the amount of taxes you owe, because the ITC is a “non-refundable” tax credit. You can, however, claim the credit over more than one year, and carry any leftover amount forward to the next year.
Benefits of solar energy: top pros to keep in mind
- Solar can either drastically reduce or totally eliminate your electric bills
This top benefit of solar panels is pretty straightforward – when you install solar power for your home, you generate your own electricity, become less reliant on your electric utility and reduce your monthly electric bill. A solar panel system typically has a 25-35-year lifespan, which means that you can cut your electricity costs for decades to come by going solar.
- Solar improves the value of your home
Millions of U.S. homeowners are interested in solar panels but haven’t taken the time to figure out what it takes to install them. This consumer reality and the undeniable benefits of having solar panels on a home complements recent studies that found property values increase after solar is installed. Even if you’re planning on moving in the near future, you’ll earn back your solar panel investment and then some when you sell your home.
- Solar can pay you money while you’re earning back your investment
Due to a number of awesome solar incentives in the U.S., solar panels can actually turn you a profit in addition to generating bill savings that pay off the cost of the system. Solar renewable energy credits (SRECs) and net metering are two key benefits of solar that allow you to earn bill credits (or even extra cash) as your system produces electricity. In these scenarios, you are being compensated for the electricity that your solar panels generate. If you live in a state where either of these incentives apply, you can expect both immediate and long-term returns from your solar investment.