Can You Write Off Solar Panels on Your Taxes?
Installing solar panels comes with many benefits, one of them being that you can start saving money on electricity almost right away. Yes, solar panels can dramatically reduce your monthly energy costs, starting on day one.
But the savings don’t just stop there. Not only do solar panels reduce energy costs, but they will also give you a tax credit on your taxes come spring.
So, does this mean that you are writing off your solar panels on your taxes? How does the federal solar tax credit work? Let’s dive in!
How Does the Federal Solar Tax Credit Work?
The federal solar tax credit is known formally as the Investment Tax Credit (ITC) and is part of a congressional effort to encourage the adoption of solar panels throughout the United States.
Originally enacted in 2006, there have been many changes to the ITC in the last few years. Until 2019, homeowners received a 30% tax credit if they installed a solar panel system. The tax credit dropped to 26% in 2020 and will decrease until the program is eliminated in 2024.
To qualify, you must:
- Own the solar system. It cannot be leased
- Install new solar panels and equipment. Used systems do not qualify for the ITC
- Have the system installed on your primary or secondary residence located in the USA
- Or install the solar panels at an off-site community solar project that you are participating in
The best part of the ITC is that the tax credit covers the total cost of your solar panel installation. This can include:
- The solar equipment
- Solar consultant fees
- Installation fees
- Electrician fees
- Engineering fees
- Freight and shipping costs
- And more!
Further, the federal solar tax credit is not capped at a specific dollar amount. No matter how much you pay for your solar system in 2022, you can claim 26% of the total cost to receive your tax credit.
Tax Deductions Vs. Tax Credits
It is important to note that the ITC is a tax credit, not a tax deduction. What is the difference? Though we aren’t accountants, here is a quick explanation:
- A tax deduction refers to a portion of your income that is exempt from income tax if you meet certain requirements. Say you spent some of your income on a business expense or it was covered under a deduction allowance. This is a deduction!
- A tax credit is a dollar-for-dollar reduction of the total amount of income tax that you are required to pay.
So say your total tax bill is $15,000 but you earn a federal solar tax credit of $5,000 for installing solar on your property. You can reduce the amount of $5,000 off your tax bill and you’d owe $10,000 for the year instead. But this is mainly hypothetical, make sure to discuss your specific tax situation with a licensed tax professional as your situation might be more complicated.
Bottom line? Tax credits generally offer more tax savings than tax deductions.
2022 Is the Year to Go Solar
Nothing lasts forever, and that includes the federal solar tax credit. If you want to install solar energy in your home, 2022 is the last year to enjoy the 26% benefits under the ITC.
Starting in 2023, the ITC will drop to 22% and it will then be eliminated in 2024 unless Congress extends it again.
Take Advantage of Solar when Filing Taxes
There are many benefits of going solar, and the ITC is just one of them! Take advantage of the solar tax credit and go solar with Solar Bear Orlando this year before the ITC drops to 22% next year!
Ready to get started with solar? Call Solar Bear Orlando today for a quote; (727) 471-7442!