Going solar is a great way to contribute positively to fighting global warming. Besides that, it is an excellent way to reduce your energy bills. Once installed, a residential solar energy system can pay for itself in five to fifteen years. A significant reason for this is the state and federal tax incentives. The most important tax incentive at the federal level is the Federal Solar Tax Credit; this is how the Federal solar tax credit could benefit you.
What is the Federal Solar Tax Credit?
When you install a solar system in your home, you can claim a residential solar investment tax credit (ITC) on your federal income taxes. It is not a tax deduction; instead, it reduces how much you owe in federal taxes. The solar ITC does not have a cap limit on how much you can claim. Once you install a solar system, you can claim the federal solar tax credit. If you owe less tax than the credit you earn, you can roll it over the next year.
Updates to the Federal Solar Tax Credit
On August 16, 2022, President Biden signed the Inflation Reduction Act into law. The act includes provisions for the solar Investment Tax Credit, and some updates were made. One of the most significant changes to the ITC is that it increased the tax credit to 30%.
The reduction will apply to systems installed from 2022 to 2032. In 2033 that will fall to 26%, and in 2034 it will fall to 22%. For those who have installed residential solar in 2022, the tax credit will rise from 22% to 30% if you have yet to claim it.
Updates were also made for solar storage equipment costs. Energy storage devices with a capacity of 3KWh or more are now supported, including stand-alone storage devices.
Benefits for Homeowners
In the simplest terms, ITC cuts the cost of rooftop solar installation by 30%. In actual savings, that is over $7,500 for the average solar system. Making it easy to install a solar system that will unlock extra savings on energy bills or around $10,000 over the solar system’s lifetime.
Besides the federal tax incentives, your state or county may offer some tax incentives. Additionally, some states require utilities to buy solar energy from you in exchange for energy credits. With the expanded incentives for solar storage, homeowners can also store their energy for use at night.
You might be eligible to claim the federal solar tax credit if your solar system was installed between January 1, 2017, and December 31, 2034. The tax credit can only be claimed on the original installation of a solar system of any size located at your residence in the United States. To claim your solar ITC, you have to own the system. You are not eligible if the system is leased or is part of a solar power purchase agreement (PPA).
The federal solar tax credit makes it cost-effective to switch to solar. If you plan to install a solar system, schedule a consultation to see how much you can save. TriSMART Solar – Smart Energy for Smart People!