Americans have seen the need to install solar panels at home and in the workplace. However, most are afraid of the initial cost that comes with putting up one. The good news is that solar is now more affordable in the US. This is all thanks to the federal solar tax credit bill which took effect on December 18, 2015. This bill covers a 5-year extension for solar tax credit. Get to know this better.
Referred to as investment tax credit (ITC), the federal tax credit legislation covers a deduction amounting to 30 percent of the total solar energy system installation cost during the computation of your federal taxes. This applies to both commercial and residential systems. Regardless of how much you will spend on the installation, that value will be covered in the computation of your federal tax deduction.
Who is Qualified for the Credit?
All owners of a solar energy system are qualified to claim the solar tax credit, regardless of whether or not you have enough tax liability to cover the claim in one taxable year. All remaining credits can be rolled over to the next year, provided that the tax credit extension is still in effect. Take note though that you will not be allowed to claim the tax credit if you are simply leasing the solar energy system from a solar installer.
How Does the Extension Impact the Solar Industry?
The ITC was initiated in 2005 via the Energy Policy Act and was supposed to expire in 2007. However, with initiatives from lawmakers, the expiration date was postponed up until 2016. It is as if the extension is not enough, an additional expiration date via the 2015 bill was granted. Here is how the extension impacts the industry.
Other Changes that the Solar Tax Credit Brought
Note that in the past, when the ITC was originally established, new solar energy system owners were not allowed to claim tax credit until the solar energy system was put into use. The new legislation, however, has changed this scenario. Now, solar energy system owners are allowed to claim the credit once the installation is complete. All systems that are already being operated by December 21, 2023 are covered in this legislation.
- Installations made from 2016 to 2019. Deduction from taxes is allowed at 30% of the installation cost of the solar energy system. This means that you will still be able to save a huge amount when investing on such systems.
- Installations made in 2020. The deductible is set at 26% of the cost of installation for residential and commercial owners.
- Installations made in 2021. Cost of deductible is 22% for residential and commercial owners.
- Installations made from 2022 onwards. This is when the entire scenario will change for homeowners. From 2022, onwards, no deductible is allowed on residential solar energy systems. As for commercial solar energy system owners, deductible is set at 10% of the installation cost.
Claiming Your Credit
The federal solar tax credit can be claimed when you file your annual federal tax return, regardless if you file it on your own, or you seek the help of an accountant for the filing of your tax return.