What You Need to Know About the Updated Federal Solar Tax Credit
If you have been waiting to install solar panels, here’s your sign! With the Federal Solar Tax Credit, now is the best time to go solar.
But before you sign on the dotted line, there are a few things that you need to know about the updates to the Federal Solar Tax Credit which has now been extended through 2024. Ready to learn more? Let’s go!
History of the Solar Tax Credit
The Solar Tax Credit, also known as the Investment Tax Credit (ITC), began in 2005. It applies to residences, businesses, agricultural businesses, and utilities. There is no cap, so even a multi-million-dollar solar installation can use the credit.
Take note, this is not a tax deduction, rather it is a tax credit. A deduction lowers your taxable income, but a credit is a direct reduction to your tax bill.
Originally, the ITC was meant to expire just two years after it began. But once it started, it never stopped and has now been renewed until 2024.
Up until 2019, the solar tax credit had been 30%, but in 2020, the credit dropped to 26% for residential solar installations. It was scheduled to drop to 22% in 2021, to 10% in 2023, and then be terminated after that.
For commercial and utility solar installs, the plan was meant to follow the same structure, but the 10% credit would remain in effect indefinitely.
Updates to the Solar Credit
As 2020 ended, Congress and the President agreed on a new spending and stimulus bill which included an extension of the ITC for two more years.
What this means:
- The 26% tax credit has been extended through 2022
- The 22% tax credit will kick in on January 1st, 2023
- The 10% tax credit will begin on January 1st, 2024
- The ITC will expire for residential solar installation on December 31st, 2024, unless it is extended again
- Commercial and agricultural solar will follow the same outline, and the 10% credit will continue indefinitely after 2024
This means that if you install a $20,000 residential or commercial solar system before the end of 2022, you will receive a $5200 credit back when you file your taxes.
Who Can Claim the Solar Tax Investment Credit?
Any residence, farm, business, or utility can claim the Federal ITC if they own the solar system that they are installing.
This means that if you are paying for the system upfront or if you are financing it, you own the system and can claim the tax credit. If you are leasing your solar system, you cannot claim the tax credit.
Claiming the Solar Investment Tax Credit
It is simple to claim the Solar Investment Tax Credit. If you file your own taxes, you will need to get Form 5694, but if you are using a tax accountant, you will need to let them know that you installed your solar energy system last year. Also, send them your solar invoice and the total cost of the project. If you forget to tell them, you won’t be able to get the credit!
Before you sign off on your tax return, ask your accountant to outline how much of the credit you received and if any of it will be rolled over to the next year. This can happen if the credit is larger than your total tax owed for the year. For example, if you owe $5000 in taxes, but get an $8000 solar tax credit, $3000 of the credit would be carried over to the next year.
What if I Haven’t Installed Solar Panels Yet?
If you haven’t had a solar system installed yet but have wanted to, what are you waiting for? Get them installed as soon as possible so you can be sure that you receive the maximum solar tax credit. 10% is ok, 22% is good, but 26% is better!
Take Advantage of the Solar Investment Tax Credit
Don’t wait to install your solar panels! Take full advantage of the Federal Solar Investment Tax Credit by requesting a solar consultation and quote from Solar Bear Orlando. We will help you decide what size system is best for your home or business and will answer any questions that you might have about the ITC.
Ready to get started? Call Solar Bear Orlando today; 407-904-7585!