Legislators created the solar tax credit in 2005 to make solar energy more affordable by reducing taxes on U.S. homeowners’ purchase and installation costs. Lawmakers extended the solar investment tax credit (ITC) through 2015. Then, Congress approved the 2016 to 2019 federal spending bill.
This further extended the solar panel tax credit by maintaining the 30% off for taxpayers if they complete the purchase and installation before Dec. 31, 2019.
However, when Congress passed an extensive omnibus spending package — $900 million in coronavirus relief — the package included another solar tax credit extension. Under the new legislation, the residential solar tax credit was set to be 26% from 2020 to 2022, and then 22% in 2023.
If it weren’t for another extension, via the Inflation Reduction Act, the credit would have expired in 2024. Fortunately, the Inflation Reduction Act increased and extended the credit to 30% through 2032. The credit is now set to reduce to 26% in 2033 and 22% in 2034, after which it will expire if Congress doesn’t renew it again.
The federal solar ITC makes switching to solar power an easy and affordable transition. You can claim it when filing your federal income taxes for your solar photovoltaic (PV) system, battery storage and installation costs.
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HOW WILL THE SOLAR TAX INCENTIVE BENEFIT YOU?
Most people consider solar panels a major home improvement project. But most people go solar with no money down and eventually generate significant long-term savings by reducing or eliminating their electric bill.
The average home saves between $20,000 and $40,000 over its solar energy system’s lifetime.
Here are the top financial reasons to go solar.
- Electricity Bill Reduction: Even if you don’t produce all the power that your home or business requires, your monthly utility usage drastically decreases.
- Net Metering: This utility billing method allows solar owners to send their unused energy to the grid in exchange for credits on their monthly utility bill. Our five service areas (Texas, Colorado, Florida, Virginia, and North Carolina) all have net metering in place with local utility companies.
- Increase in Home Property’s Price: Homes with solar panels sell at higher prices than those without. So if you ever decide to sell your home, you’ll most likely see a higher home property price.
- State Tax Incentives: Some states offer tax incentives to make owning solar more affordable.
Colorado and Florida both allow an exemption from the state sales tax (or sales and use tax) for the purchase of solar panels, which reduces the system’s up-front price. Similarly, Texas and Florida provide a property tax exemption to ensure homeowners don’t have to pay additional property taxes on their homes’ increased in price as a result of their solar panels.
In addition to the federal solar tax credit, local rebates may be available to help reduce installation costs. For example, Austin Energy offers a solar rebate for solar power, as does CPS Energy in San Antonio. Read the complete Texas solar incentives and rebates if you live here or you can see our full list of solar rebates here.
WHO IS ELIGIBLE FOR THE ITC?
If you meet these criteria, you may be eligible to benefit from the solar ITC:
- You purchased and installed your PV system sometime between Jan. 1, 2006, and today, or you plan to by Dec. 31, 2034.
- Your PV setup is at a U.S. residence or commercial business.
- Your solar panel system is new or unused. You can claim the solar tax credit on only original equipment installations.
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HOW DO I CLAIM THE SOLAR TAX CREDIT?
If you purchase a solar energy system and it belongs to your business or household, you’re eligible for the solar tax credit. You can claim the credit once your solar is paid in full, when filing your annual federal tax return.
Make sure to let your accountant know you’ve installed solar panels in the past year. If you file your own taxes, simply use tax form 5695.
IS THERE AN INCOME LIMIT FOR THE SOLAR TAX CREDIT?
If you’re concerned about income limitations, there’s no maximum cap to qualify for the solar ITC. However, you’ll need a tax liability charge that’s large enough to claim your full credit.
CAN THE FEDERAL SOLAR TAX CREDIT BE CARRIED OVER?
If you don’t have sufficient tax liability to claim your entire solar tax credit in one year, your remaining credits can carry over into future years as long as the tax credit is in effect.
IS THE SOLAR ENERGY TAX CREDIT REFUNDABLE?
The ITC is a nonrefundable credit. However, according to Section 48 of the Internal Revenue Code, the credit can be carried back one year or carried forward in the next 20 years.
Therefore, if you don’t have a tax liability this year but had one last year, you can still claim the credit. If you don’t have one this year but will at some point in the next 20 years, you can still claim the credit.
FREEDOM SOLAR IS AN INSTALLER YOU CAN TRUST
A solar panel installation is a big project, so it’s important to work with a reliable and reputable team. Whether you’re an average homeowner or a large business such as Whole Foods or Office Depot, solar panel company Freedom Solar is dedicated to making your switch to solar an easy and affordable transition.
So if you’re thinking about going solar, ready to make the switch to a lifetime of green energy, or interested in reducing your tax burden by lowering your electric bill, we’re here to help. You can begin your journey with our 7 Steps to Solar process.
We’ll find every available financial incentive, practice COVID-19-conscious installation methods, and offer lifetime service to meet your needs! Check out what our customers say about how we deliver on our promises.
No matter who installed your PV system, or what model it is – Freedom Solar can assist with any solar repair request. We can maintain, repair, and upgrade any solar system for maximum energy production and efficiency. Don’t hesitate to request the service!
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