One of the most effective incentives for promoting homeowners and business owners to go solar is the solar investment tax credit (ITC), sometimes known as the federal solar tax credit. It enables you to deduct 26% of the overall cost of your solar project from the federal taxes you must pay, helping to mitigate the upfront cost of solar.
Most of us know that the federal government has been supporting solar growth for the past decade, so what's so special about the ITC?
A tax credit is a decrease in the income tax you would have otherwise owed, dollar for dollar. For instance, getting a $1,000 federal tax credit lowers your outstanding $1,000 in federal income taxes. The federal tax credit is occasionally referred to as an Investment Tax Credit or ITC, although it differs from the ITC provided to companies that operate solar systems.
The federal residential solar energy credit is a tax deduction that can be used to reduce a portion of the price of a solar photovoltaic (PV) system on federal income taxes. (Although they are outside the purview of this advice, other types of solar energy are also eligible for comparable credits.)
The system must be installed and produce power for a US-based residence during the tax year. The IRS has equated "put in service" with "finished installation" even though it lacks a clear-cut definition.
Congress extended the ITC in December 2020; it now offers a 26 % tax credit for systems installed in 2020–2022 and a 22 % tax credit for solar panels and other systems in 2023. (Systems, before December 31, 2019, qualified for a 30 % tax credit.) If Congress doesn't extend the tax credit, it will end in 2024.
However, the ITC has experienced some sizable modifications recently, and greater ones are on the way. And if you're considering going solar, you must comprehend how these changes will affect your decision because the California solar tax credit is anticipated to decline over time.
Using Tax Form 5695, you can submit the Solar Investment Tax Credit just once for the tax year in which your system is installed. The credit is then divided by the amount of your federal tax due, so if you receive $1,000 in credits, your tax liability will be reduced by $1,000.
There are incentives to support the launch of new sectors and promote broad adoption, and the solar ITC has done just that for the solar industry. According to the Solar Energy Industries Association (SEIA), the federal solar tax credit is known for helping the sector grow by more than 10,000% since 2006, with an average annual growth rate of 50%.
Some argue that the sector needs subsidies like the ITC less and less as solar use increases. A home solar system is becoming more and more affordable for households around the nation as a result of ongoing cost reductions over time. These price reductions have made switching to solar energy more accessible, enabling those with limited financial resources to save money on their power bills and lessen their environmental impact.
At the end of 2019, the ITC for residential and commercial solar installations was lowered from 30 to 26% in response to falling solar costs. The 26% rate was expanded for all solar systems (residential and commercial) to the end of 2022 when it was initially intended to decrease even lower by the end of 2020. Your solar system must be in your property by December 31, 2022, to be eligible for the 26% incentive.
It's vital to remember that for all solar projects starting construction 2023, the ITC will once more decrease to 22%. The ITC permanently lowers to 10% for commercial solar projects after 2023. The ITC always reduces to 0% for residential consumers.
If you've been considering installing a new solar energy system in your house, you might be tempted to put off your purchase to benefit from even more discounted rates later. The solar panel of the future may be less expensive than today's, but the loss of significant solar incentives like the solar ITC may completely negate those savings.
If you act soon enough, you may save 26% on the overall installation cost by the end of 2022. But if you hold off too long, you run the risk of having to pay full price for a system that the government is now prepared to subsidize. So, it’s time to contact solar panel companies, and have your solar panel system installed now.
Now that we understand how solar tax credit works, it's time to talk about a solar panel installation company that offers long-lasting, low-maintenance, and reliable services. AMECO Solar & Roofing can be the best choice to assist you in going solar.
AMECO Solar & Roofing has come a long way from its beginnings in 1974. Offering trustworthy, cost-effective solar solutions to secure a future powered by clean energy and enhance the environment for everyone has been the fundamental goal of our solar panel company throughout the years.
AMECO Solar & Roofing only partners with the best solar panel manufacturers in the industry. Each potential partner must meet our high quality, convenience, and aesthetics standards.
AMECO specializes in all types of residential and commercial roofing.
It's time to take advantage of the solar panel tax credit! Contact us to see if you qualify to save 26% of your installation cost. AMECO is here for all your solar and roofing needs.