Did you know that if you installed a solar energy system in your home before December 31, 2019, you might have been eligible for a 30 percent federal tax credit? In addition to the money you’ll save on your electricity bill by installing a solar energy system, there are attractive state and federal incentives still in effect that further sweeten the deal.
Here’s the scoop on the federal residential solar energy credit:
· For solar energy systems installed in 2020 – 2022, there’s a tax credit of 26 percent of eligible expenses. (See below for a list of these) Essentially this is a discount of 26 percent of your solar energy system!
· For systems installed in 2023, the tax credit is 22 percent. Congress has not yet acted to renew the credit in 2024.
The solar energy system must be owned by you, not leased, and it must be placed in service during the tax year and generate electricity for your primary or secondary residence located in the United States. If you’ve financed your system and are responsible for the full amount, you can still use the solar tax credit, although financing fees and other costs are not considered eligible expenses. There is no income cap or maximum amount that can be claimed, but the credit only applies to the original installation of the solar equipment. You can also apply the tax credit if you add a solar battery to your system within one year of installation.
The expenses that are included are the solar PV panels or PV cells used to power an attic fan, labor costs for installation (including fees for permits, inspection, and developer fees), balance-of-system equipment, energy storage devices that are charged exclusively by the solar panels, and sales taxes. This can add up to a considerable deduction on your federal taxes. If your tax liability is smaller than the amount of the credit, you can carry over the credit for future years.
If you’ve received a rebate from your state and/or utility company, you need to subtract that amount from the total cost of your system. For example, if you were eligible for a state solar rebate of $2,000 and a utility company rebate of $1,000 on a $22,000 installation, your federal solar tax credit would be $4,940, which is 26 percent of the total eligible cost of the $19,000 you paid out of pocket. Check here if your state offers tax incentives to go solar, which is an added bonus!
This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or tax advice.
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