Going solar is a move in the right direction, but it can come with a hefty price tag. With federal and state solar tax credits, however, you can save on your new solar energy system. That means you can go solar for much less.
Want to learn how much you can save?
Read on to learn more about what these tax credits are and how you can apply for them.
What is a Solar Tax Credit?
Solar tax credits are solar incentives by the government that provides tax breaks for individuals who own and install a new solar energy system (commercial or residential) with new solar panels. You cannot take advantage of this tax credit if you lease your energy system.
The federal government has established a federal solar tax credit, but individual states may also have their own version of a tax credit. You may apply for federal and state tax credits simultaneously, but when you apply for a state tax credit, you increase the total taxable income for your federal taxes. Federal and state tax credits are not additive.
The federal solar tax credit, also known as “investment tax credit,” provides a percentage tax break on your new solar energy system. This includes related expenses such as your solar panel cost, and there is no limit on what you can claim.
If you install a new solar energy system before 2023, you can claim 26% of the cost of the new system on your annual taxes. If you install a new solar energy system in 2023, you can claim 22% of the cost of the new system. In 2024, residential owners looking to install a new solar energy system are out of luck with the federal solar tax credit. Only owners of commercial solar energy systems can claim a tax credit of 10% in the year 2024.
Keep in mind, solar tax credits are not the same as solar rebates. They’re both forms of solar incentives, but solar rebates are a fixed amount paid upfront to the owner when they install a new solar energy system.
How to Apply for a Solar Tax Credit
Applying for solar tax credits is simple. When the time comes to file taxes for the year, let your accountant know that you have installed a new solar energy system. They will be able to calculate the correct amount of tax credits you are eligible for, and file your taxes appropriately.
If you are doing your taxes yourself, you need to complete IRS Form 5695 to confirm your eligibility to receive federal tax credits for your new solar energy system. Once you have calculated the total federal tax credit you can claim, input this number into Schedule 3 (Form 1040).
Save Money and Go Solar
If you are a residential homeowner and you are considering going solar to reduce and cut your energy bills, be sure to do so within the next two years. The federal solar tax credit still applies up until December 31st, 2023.
After this date, you can still take advantage of any existing state solar tax incentives, but you would miss out on the federal tax credit. Go solar now and maximize your savings.
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