What if you could get tens of thousands of dollars in tax credits just for switching to solar energy?
Well, it turns out you can. Solar tax credits can cut thousands of dollars off your income tax bill in the years following your solar installation. Many people don’t know about these tax benefits, but now you do and can turn them into more money in your pocket.
Keep reading to learn everything you need about the solar tax credit and how it works.
Overview of Solar Tax Credits
Solar tax credits incentivize homeowners and business owners to use solar energy by reducing out-of-pocket costs. To qualify for federal solar tax credits, you must affix the solar energy system to a customer’s primary or secondary residence or business headquarters.
You must have placed it in service in or before the end of 2020. The solar tax credit is equal to 26% of the cost of purchasing and installing a solar energy system.
It covers both the product and installation labor costs. This credit is available for businesses and residential systems, including battery storage.
It applies to solar systems installed for existing and newly constructed properties. The solar tax credit applies to the system’s total cost, including the product costs and labor costs of installation.
For example, if you purchased a solar energy system and paid $20,000 for the system and installation, you can receive a credit for $5,200 (26%) of the total cost. You’ll need to provide receipts and other documents to verify your costs and get the credit.
Your solar installer can help you fill out the forms. After you receive your credit, you’ll be able to reduce your total cost and be one step closer to getting solar for your home.
Federal and State Solar Tax Credits Explained
Solar tax credits are incentives the federal or state government gives to encourage the use of solar energy. Federal Solar Tax Credits, or Investment Tax Credits (ITC), allow individuals and businesses to receive a tax credit worth 36% of the solar system’s cost.
This is available through the end of 2021 but will be lowered to 22% in 2022. State Solar Tax Credits also exist and often range from 5-25%, and their expiration varies by state.
Other factors can come into play, like the size of the system or building type. Those who use renewable energy storage systems, meaning the system allows for energy efficiency, are given additional tax credits from the state.
Cities, counties, electric utilities, and regional green-power markets can also provide tax credits or rebates located in specific areas. Moreover, some companies that manufacture solar panels also offer financial incentives.
Depending on the type of system, tax credits can cover around 30% of the total cost of a solar system. Check with your state and local government to get the full details.
Different Forms of Solar Tax Credits
Solar Tax Credits work differently depending on what form they take. There are three primary forms of solar tax credits. (1) the Federal Solar Investment Tax Credit (ITC); (2) the Residential Renewable Energy Tax Credit (RETC); and (3) State or Local Solar Tax Credits.
The Federal Solar Investment Tax Credit applies to commercial entities, homeowners, and small businesses. It provides a tax credit of up to 30% of the system’s total cost.
The Residential Renewable Energy Tax Credit applies to homeowners who install renewable energy systems and is a credit of up to 30% of the cost. And finally, State or Local Solar Tax Credits are incentives with varying amounts and restrictions, depending on the locality.
Qualifying Criteria for Solar Tax Credits
Qualifying criteria for solar tax credits vary from state to state. In general, you must meet specific criteria to be eligible for credit.
This includes paying for installing a solar energy system through a loan or cash. The system must be partially powered by the sun’s energy and be tied to your home’s electrical system.
In most states, you must also receive a certificate from a third-party certifying that your system meets the criteria for a solar tax credit. The amount of credit you are eligible for is determined by your system’s cost and your state’s tax credit rate.
This can range from 3%-30%. Once you’re eligible, you can receive a percentage of your costs back each year until you have claimed the total amount of the credit.
Claiming Solar Tax Credits
When taxpayers have installed solar technology, they can claim a certain percentage of their solar system’s total cost on their taxes. This credit is usually a percentage of the total cost and can be used to lower your tax liability or the amount you owe.
You must claim the credit in the year when the solar system is put in service. You can claim it for up to the total cost of the system minus any cash or loan payments received.
In order to claim credit, the Solar Tax Form 5695 must be completed and included with your tax return paperwork. When the credit is taken, the home that the solar panel installation is made to must be the primary residence.
With the proper paperwork, homeowners can claim up to 30% of the total solar costs. This is an excellent way for homeowners to benefit from solar energy for years to come.
Taking Advantage of Solar Tax Credits for Your Home
Participating in solar tax credits offers a tremendous financial incentive and an opportunity to reduce energy consumption. Solar tax credits can help you save money and positively change your life and the community.
So, if you want to save money and help the environment, take advantage of solar tax credits today. Contact a qualified tax professional to learn more about solar tax credits.
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