If you’re considering a solar power solution for your home, you probably already know about the potential cost savings on your utility bills. However, you may not be aware of a tax credit that can save you thousands of dollars on the cost of your solar energy system. This credit is known as the Federal Solar Tax Credit, which is also called the Investment Tax Credit. In this article, we’ll take a closer look at the Federal Solar Tax Credit and figure out what it means for you.
What Is the Federal Solar Tax Credit?
The federal government rewards taxpayers who invest in solar energy solutions.
Homeowners who switch to solar can claim 30 percent of the total costs of their project on their federal tax return. Eligible expenses include permits, equipment, and installation. For example, if the total costs of your solar project are $10,000, the credit will ensure that you’ll owe $3,000 less in next year’s taxes. A tax credit is different than a tax refund– to claim a tax credit, you need to owe taxes in the first place. Since most people do end up owing taxes, the majority of solar customers find that they’re eligible for the incentive.
How to Claim the Solar Tax Credit
The first step in claiming the Federal Solar Tax Credit is to hold on to all of the receipts from expenses associated with your solar project. If you hire a contractor to install your system, you can claim that expense for the tax credit; however, if you choose to install your own solar panels, you can’t claim the cost of your own labor. Once your project is complete, you’ll need to complete IRS Form 5695 in order to calculate your solar credits. You’ll then add this solar energy credit information to your Form 1040.
Important Facts about the Federal Solar Tax Credit
It’s important to be aware that you can only claim the Federal Solar Tax Credit if you own your solar system. Homeowners who lease their systems are not eligible for the tax credit. This is why financing a solar project is often preferable to leasing: Financing allows you to maintain your rights to the solar incentive while avoiding the upfront costs of a solar investment.
Another key fact to keep in mind is that the solar tax credit won’t be around forever. The value of the tax credit is decreasing each year, and it will be phased out completely by 2022. Fortunately, you can claim your tax credit in the same year that you complete your solar project. If you’ve been hesitating about your decision to invest in solar energy, there’s no time like the present to move forward.