Going solar is a significant investment for homeowners. Luckily, several different financing options and tax incentives are available to help offset the initial expense and make renewable energy more affordable for residences across the country.
One of the most significant incentives for going solar is the Federal Solar ITC Tax Credit. This is the final year that homeowners will be able to claim the full 26% credit before it steps down in 2023 and disappears entirely in 2024. If you are thinking about going solar and want to receive the maximum savings possible, this blog post will tell you everything you need to know.
What is the ITC Solar Tax Credit?
The ITC Solar Tax Credit was first enacted as part of the Energy Policy Act in 2005. It allows homeowners to deduct a percentage of the total cost of their solar energy system on their tax returns.
The solar tax credit was intended to promote growth within the solar industry by incentivizing homeowners to transition to renewable energy. By claiming the tax credit, you can save thousands of dollars on the cost of equipment and installation. There is no maximum amount that can be claimed.
What is the Current ITC for Solar?
The original ITC Solar Tax Credit was set to expire in 2022. Congress passed a two-year extension of the ITC credit. Solar systems installed between 2020-2022 are eligible for a 26% tax credit. Homeowners must file their claim within the same tax year that the system was installed.
The ITC tax credit will be reduced from 26% to 22% after December 31, 2022. It will expire in 2024 unless Congress approves another extension.
Here is a breakdown of the current ITC for solar:
- For systems installed in 2020: 26%
- For systems installed in 2021: 26%
- For systems installed in 2022: 26%
- For systems installed in 2023: 22%
- For systems installed in 2024 and beyond: 0%
What Expenses Are Included?
With the ITC Solar Tax Credit, homeowners can save thousands of dollars on the cost of equipment and installation. Here is a list of the different expenses that can be claimed:
- Solar PV systems (panels, wiring, inverters, and mounting equipment)
- Labor costs, including onsite preparation, assembly, and installation
- Permitting fees, inspection costs, and developer fees
- Energy storage devices that are charged exclusively by the installed solar system (such as Tesla Powerwall)
- Sales tax on the above expenses
How Do I Claim the Full ITC Credit?
The ITC Solar Tax Credit can only be claimed if you own the property and live in it for at least part of the year. It does not apply to rental properties.
Homeowners must file their claim within the same tax year installed solar system. If you have your system in 2022, you will need to file the claim on your 2022 tax return. Here are the steps you need to take to claim the full ITC Solar Tax Credit:
- Have your system installed before Dec 31, 2022
- File IRS form 5695 as part of your tax return
- Add the result to your 1040
The ITC tax credit will phase down in 2023 and disappear in 2024. As it currently stands, 2022 is your last chance to claim for the full 26% tax credit, so don’t wait to get your system installed, or you could miss out on thousands of dollars in savings.
Download your free whitepaper below to learn more about the ITC Solar Tax Credit. And if you are ready to take the next step contact Solar Optimum today. Our Energy Coordinators are standing and willing to help!
