The average cost of installing solar panels has dipped to around $19,000, a far cry from the hefty $50,000 tag a decade ago. A key player in this change? The introduction of solar tax credits. Here's how it works: when you install solar panels, you're eligible to receive up to 30% of the installation cost back through tax credits.Â
But it's not just about the immediate savings. Over time, these panels can really cut down your electricity bills. Alongside the federal incentives, many state and local governments offer extra tax breaks for solar that will save you even more.
Our Takeaways
Installing solar panels in 2024 qualifies you for a 30% tax credit on installation costs, with no upper limit.
The federal solar tax credit, initially at 26% for 2020-2021 installations, was increased to 30% for 2022-2032 installations by Congress.
This tax credit is set to decrease post-2032, dropping to 26% in 2033 and 22% in 2034, with potential expiration in 2035 unless renewed.
Eligibility for the tax credit requires owning the solar system and installation at a U.S. residence, which can include various types of dwellings.
The credit covers a range of renewable energy projects, including solar electric systems, water heaters, and more, but excludes structural support work.
What is the federal solar tax credit?
The federal solar tax credit, a key incentive for adopting solar energy, has evolved over time. Initially, solar PV systems installed in 2020 and 2021 qualified for a 26% tax credit. However, in a significant move, Congress extended the Investment Tax Credit (ITC) in August 2022. This extension increased the credit to 30% for installations done between 2022 and 2032. Notably, systems installed before December 31, 2019, were also eligible for this 30% credit.
In 2024, homeowners installing solar PV systems can still benefit from this 30% deduction on their federal taxes, with no maximum limit on the claimable amount. This initiative is designed to promote the use of renewable energy by easing the initial cost of solar installation.
Looking ahead, it's important to note that the tax credit is set to decrease after 2032. It will drop to 26% for systems installed in 2033 and further to 22% for those installed in 2034. The current legislation has the tax credit expiring in 2035, unless renewed by Congress.
Thus, for those considering solar energy, 2024 presents a financially advantageous opportunity. Beyond the immediate tax relief, the long-term benefits include significant reductions in electricity bills, especially when combined with state and local solar incentives.
What projects are eligible?
Thanks to the federal solar tax credit, in 2024, diving into solar energy is not just a smart move for the environment, but also for your wallet. But who exactly qualifies for this benefit, and what projects are eligible? Let's break it down in simple terms.
Who's Eligible?
First things first – to tap into this tax credit, you need to own the solar system. Leased systems don't count. The project must be at your U.S. residence, which the IRS defines broadly – including houses, houseboats, mobile homes, cooperative apartments, condominiums, and manufactured homes. And here's a plus – the property doesn't have to be your primary residence if it's a solar, wind, or geothermal project.
What Projects Qualify?
The tax credit isn't just for solar panels. It also covers a range of renewable energy projects:
Solar electric systems
Solar water heaters
Small wind energy systems
Biomass fuel systems
Fuel cells
Geothermal heat pumps
Covered Expenses
It's not just the equipment that's covered. The tax credit includes installation costs too. But remember, it's not a free-for-all – the credit doesn't cover structural work that's only for supporting the system.
The Fine Print
Installed your system in 2017 or later? You're in luck – that's when the credit program kicks in. And here's something to keep in mind: the credit is a generous 30% until 2032. After that, it drops to 26% in 2033 and 22% in 2034, before potentially expiring in 2035 unless Congress steps in.
So, if you're considering solar energy, 2024 is a great time to make your move. With the federal solar tax credit, you're not just saving on installation costs; you're investing in a greener future and a lighter energy bill.
How do you claim the solar tax credit?
Ready to claim your solar tax credit for 2024? It's simpler than you might think. Here's a straightforward guide to ensure you get the most out of your investment in solar energy.
File IRS Form 5695: This is your starting point. Include this form with your tax return to claim the solar tax credit.
Calculate Your Credit: In Part I of Form 5695, you'll calculate the credit amount. This is where you determine how much you'll save.
Detail Your Costs: On line 1, enter the total cost of your solar project. This includes both the system and installation costs, as outlined in your solar contract.
Work Through the Math: Complete the calculations on lines 6a, 6b, and 14. These steps help you figure out any tax liability limitations.
Finalize Your Claim: On lines 15 and 16, wrap up your calculations. Then, transfer the figure from line 15 to your Schedule 3 (Form 1040), line 5.
Documentation and Deadlines: Keep all your solar installation documents handy. Remember, timing is crucial – you can only claim the credit once, in the tax year when the installation is completed.
Need Help?: If this feels overwhelming, don't worry – we're here to help. Our team can guide you through understanding and claiming your solar tax credits, ensuring you don't miss out on these valuable savings.
Does the solar tax credit work with other incentives?Â
When it comes to solar energy, the federal tax credit is just the tip of the iceberg. Did you know you can stack up more savings with state and local incentives? Here's how to make the most of these opportunities:
State and Local Incentives: Each state has its own set of solar incentives, and they can vary widely. For instance, some states offer rebates or additional tax credits on top of the federal credit. It's worth checking out resources like NC State University’s NC Clean Energy Technology Center for a comprehensive list of available programs in your area.
Interaction with Federal Tax Credit: So, how do these state incentives play with the federal tax credit? Generally, state tax breaks or rebates don't affect your eligibility for federal solar credits. But, there's a catch – if you receive financial assistance from other sources, like utility providers, it might reduce the overall cost of your system. And since the federal tax credit is a percentage of your cost, this could mean a smaller federal credit.
Strategies for Maximizing Savings: To get the most bang for your buck, first, claim the federal tax credit. Then, apply for any state and local incentives. Remember, the order matters! By reducing your cost with the federal credit first, you might increase the percentage savings from state and local incentives.
In short, don't leave money on the table. Combining these incentives can significantly reduce the cost of going solar. And like we said earlier, if you're feeling a bit overwhelmed, we're here to help you navigate these waters.Â
FAQ
Do you get a tax refund from solar tax credit?
No, the solar tax credit is non-refundable. It reduces your tax liability but won't result in a tax refund. Any unused credit can be carried forward to the next tax year.
How does the solar tax credit work in 2024?
How many years can you write off solar panels on taxes?