June 25, 2021

The Solar Tax Credit Explained

Tax Credit

There are many benefits to owning a home solar panel system. One of them is the federal tax credit you get to help pay for it. Better known as the Solar Investment Tax Credit (ITC), this incentive is designed to encourage solar energy development and helps the average homeowner afford to become energy independent by installing a solar panel system on their home. However, there are a few things you need to know so let’s take a look at how this works and how it helps solar buyers.

How Does the Solar Investment Tax Credit Work?

The ITC is a federal tax credit that you can claim on your income taxes to lower what you owe Uncle Sam. Currently, it is 26% of the total cost of any new solar system installed on your home. That means if you install a system that costs $20,000, you can claim 26% of that cost, or $5,200, as a deduction on your taxes for the year it was installed.

Can I Carry Over Unused Amounts?

Yes! If your tax credit is greater than the amount you owe in federal taxes, you can carry over the difference into the next year and every year after up to a maximum of 20 years until you have used it all. In fact, you don’t have to claim the entire amount all at once. Some choose to claim only a portion of what they are entitled to and spread it out over a few years. Either way, it’s a great way to help pay for your new home solar system.

ITC Solar Investment Tax Credit

What About Electric Utility Rebates For Solar?

In some states like Missouri, electric utilities may provide an additional rebate for installing a solar panel system on your home. If this is the case, the amount of these rebates are subtracted from your total system cost before you calculate your 26% federal tax credit. For example, if your solar panel system cost $10,000 and your electric utility also gave you a $1,000 rebate, you would need to calculate your federal tax credit starting at $9,000.

How Long Will The ITC Last?

The ITC is a temporary benefit that is enacted by Congress. It is set to expire every few years and when that time comes, there is always uncertainty about whether or not Congress will renew it, change it, or both. Currently, the ITC is set to expire on December 31st, 2022. However, given the Biden administration’s strong support for renewable energy, it is unlikely to expire, but it may revert to the prior 30% level that was in place before 2020. This is good news because it provides the certainty that any investment into solar will qualify for at least the next year-and-a-half.

Other Considerations

As with any financial incentive, it is always best to consult with a certified CPA regarding how it will affect your tax situation. You may also check out the U.S. Department of Energy’s website on this topic or the IRS frequently asked questions page on energy incentives for more information.

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Nick Gorden

Nick Gorden is the Co-founder and CEO of Shine Solar. Nick’s energy, enthusiasm, and leadership is contagious and has contributed to attracting a talented and successful executive team. His time is focused on strategic growth, maintaining profitability and creating the optimal customer experience. Nick has started, managed and sold companies within the communications, mortgage lending, insurance and real estate industries resulting in tens of millions of dollars of market value to investors.

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