As more homeowners look for ways to reduce their utility bills, solar panels continue to grow in popularity. The good news is that the federal government and various state agencies offer tax credits and other incentives to people who choose to make their homes more energy-efficient by installing solar panels. Homeowners who want to benefit from these tax credits need to follow certain guidelines.
Check your local utility company and state government
Many state governments, as well as local utility companies, offer solar incentives to people who install solar panels on their homes.
These incentives are in addition to the federal tax credit, so your savings can add up with some quick research and a few completed forms.
You may be able to get rebates from your local utility company. In some states, you’ll receive payment for feeding excess solar energy back into your local grid.
Keep in mind that any income you receive from your solar panels is considered taxable, so speak with your tax accountant before relying on this benefit.
Install during the eligible period
The federal tax credit only applies to solar panels installed within a set period. The federal government currently applies the tax credit to solar systems installed by December 31, 2023.
In the past, the federal government has extended the deadline for the solar panel tax credit, but this extension may be a one-time event.
Understanding tax credits
A tax credit is an amount subtracted from your total tax bill. The current tax credit for installing a solar photovoltaic or PV system varies based on the program you choose and its cost.
For example, if you receive a $1,000 tax credit and you owe $2,500 in taxes, your tax bill will total $1,500. You can roll your tax credit into the next year, but you cannot get cash back from your tax credit.
Track expenses
Your tax credit is based on how much you spend on the entire system. It includes a percentage of the cost of the solar panels along with labor costs, which include:
- Installation costs
- Permitting costs
- Inspection costs
- Developer fees
Other expenses you can claim toward the total tax credit include equipment like inverters, wiring, mounting hardware, and batteries.
The entire value is not covered
The solar energy tax credit is an investment tax credit that gives homeowners a 26 percent deduction from the cost of their solar panel purchase and installation expenses. Both residential and commercial systems qualify, and the federal government does not cap the amount.
If you receive any state or local incentives, they do not reduce the amount you can claim on your 26 percent investment tax credit. Those incentives are in addition to the tax credit, so it’s worth finding as many rebates and credits as possible.
Conclusion
The solar energy tax credit will not last forever. Since the federal government does not cap the tax credit, homeowners can install solar panels through the best installation company in their area. Solar panels are in high demand, so place your order and schedule installation before the tax credit expires.
