The federal solar tax credit, also referred to as the solar investment tax credit or ITC, provides individuals and businesses with the opportunity to purchase a solar energy system and deduct up to 26 percent of the system’s price on federal taxes. Over the past two decades, the cost of these systems decreased significantly, but buyers appreciate any savings when the time comes to complete a home or business improvement project. Anyone who is looking into solar panels for their home or business or those who recently had this project completed needs to determine whether they qualify for the tax credit and how to claim the deduction on their federal taxes.
How These Tax Credits Work
The solar tax credit appears on a person’s taxes as a deduction. This non-refundable tax credit means the buyer cannot get back more money than they owe on taxes. The amount available for the credit depends on which year the project begins. If construction on the solar panel system begins in 2021 or 2022, the owner becomes eligible for a 26 percent federal tax credit. This figure drops to 22 percent in 2023, and residential projects started in 2024 or later won’t qualify for the credit. However, business owners find they will continue to receive a federal tax deduction equal to ten percent of the system cost. check it out here.
Which Systems Qualify
Homeowners must understand whether they qualify for the federal tax credit. To receive this credit, the system must be eligible for the ITC, and they must move into a newly built home and own the system. Many homeowners choose to lease a system or get their electricity through a PPA or power purchase agreement. These homeowners cannot claim the ITC, as the solar power supplier receives it instead. According to realtimecampaign.com, it’s best to speak with a tax professional to learn whether this credit can be claimed before investing in a solar system so there are no surprises when taxes come due.
Claiming the Solar Tax Credit
Men and women want to know how solar tax credits work for businesses and individuals. Eligible property owners report this information on IRS form 5695 when they file their taxes. Part I of this form is used to calculate the credit, which the filer then lists on their 1040 form. A person who fails to claim the credit when filing their taxes has the option of amending the return at a later date. Residential owners who purchase a system from Rooftop Solar or another provider claim the credit under Section 25D. Businesses, on the other hand, report the credit under Section 48.
The Solar Investment Tax Credit Background
Solar energy systems were costly when they first became available. Although prices have dropped considerably, many homeowners find the systems remain out of reach. To help individuals desiring solar power for their homes, the Energy Policy Act of 2005 established the tax credit for solar investments. This act also outlined renewable fuels standards, implemented a biofuels use increase, and created tax incentives for renewable energy. The law was only put into place until 2007. However, thanks to the popularity of the law, the federal government has extended the program multiple times.
Thanks to advances in the industry, solar system prices continue to decline. Experts believe this trend will continue in the coming years. Anyone considering investing in solar power should do so before the tax credit expires, however, nobody knows if the government will extend the program again. No person wants to miss out on tax savings, but those who wait could find they end up paying more in the long run.