A Breakdown of the 2022 Tax Credit on Solar
Disclaimer: This article is intended to provide information on the federal investment tax credit for those interested. It does not constitute professional tax advice or other financial guidance, nor should it be the only source of information when making tax-related decisions.
So, you’re interested in going solar and keep seeing conflicting terms about the tax incentives. Some call it a “coupon,” “tax refund,” “tax credit,” “ITC,” or even a “tax break.” The most accurate and correct term for the incentive is an investment tax credit (ITC). In that, it is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe.
It’s tax time. Uncle Sam hits you with a federal bill of $2,000. Luckily you went solar, filled out the form 5695 and received an ITC of $2,000. The amount you now owe in federal taxes has dropped to $0.
If your ITC is $5,000, and only owe Uncle Sam $2,000 in federal taxes, the remaining $3,000 credit will be applied to future years.
Get the Most Out of the ITC
The two great things about the ITC are: there’s no maximum amount that can be claimed and the cost of assembly of installation is included. This means if you need a new roof or structure (carport, pergola, patio, etc.) in order to install the solar panel system, it can be included in the ITC – that’s like a 26% coupon for a patio!
The solar ITC started at 30% in 201,9 but has decreased to 26% in 2020. The next expected drop is in 2023 to 22%. By 2024, the ITC will be completely gone (unless it’s for a commercial property. More about that here).
Things to Consider
When it comes to taxes, there are a lot of exceptions. The ITC is no different. First off, in order to qualify for it, the solar panel system needs to be installed no later than December 31, 2023 (December 31, 2022 for 26% off). Installation time can vary greatly on permit time (HOA, utility company, even yourself). Not until Solar Edge Pros receives permission from all agencies can we begin installation, which typically is done in just one day (find out more about the installation timeline here. So it’s best to sign the contract to go solar at least three months before 12/31 in order to qualify.
The ITC only applies on the original installation. So, if you purchased a small system, then later decided you wanted more panels, the tax credit would not apply on the ones added. You’ll save more by going solar once per a property. We recommend considering your home’s future electrical use when going solar:
Are you expecting children to move out in the next five to ten years?
Are you expecting to add a pool to the property?
Will you be working from home more?
Schedule an appointment with one of our knowledgeable consultants to see how we can help save you the most on your electric bill here.
Get more information on the tax credits and utility rebates here: https://solaredgepros.com/rebates-tax-credits/
Want the same information, but from a government website? Find it here: https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
You can also watch our consultant, Brian, go into more more in-depth on the subject here:
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