Have you toyed around with the idea of using solar energy at your home but held off waiting for the right time? Well, now is the time! The federal government initiated the Federal residential solar energy tax credit, which awards a 26% tax deduction based on the cost of a solar energy system in 2021 and 2022. This tax credit is amazing news for anyone who wants a reliable, abundant, and affordable energy source for their residence.
This generous tax credit will not be around forever, though. The 26% tax credit can only be claimed through the end of 2022. The Federal residential solar energy tax credit will decrease to 22% in 2023. Unfortunately, the credit will come to an end. Unless renewed by congress, the tax credit will completely disappear by the end of 2024. So now is definitely the time to take advantage of the incredible savings.
There are a lot of reasons to install a solar power system, and the savings on your energy bill are just the beginning! There is no cap to how much can be claimed on this Federal tax deduction. This means the 26% applies to the complete solar equipment and installation costs, and you can go all out for the solar power installation of your dreams. Since this credit applies to your total tax liability amount, this tax deduction can offer huge savings when filing.
A Few Things To Keep In Mind
There are a few things to keep in mind when taking advantage of the federal solar tax credit:
- You must own the home that the solar system is installed at.
This can be your primary or secondary residence. Unfortunately, this credit does not apply to your business properties. Your residence need not be connected to the energy grid as long as your solar system is generating energy for your property.
- You must own the solar panels.
This means either purchased through cash payment or contracted loan financing. Your solar system can not be leased.
- Your solar system must be new and installed in the year you are filing for the credit.
In order to file for the Federal solar residential solar energy tax credit, you must fill out the IRS Form 5695 “Residential Energy Credits” for the current year you are filing taxes. This credit is only applicable for the year the solar system is installed and paid for. Click here to download form 5696: http://www.irs.gov/pub/irs-pdf/i5695.pdf. Be sure you also note the findings of Form 5695 on the IRS Schedule3/Form 1040.
Taxes can be tricky, so we suggest you seek a qualified tax professionals’ advice before filling out any tax forms. However, here are some basic things to keep in mind when you look over the IRS 5695 “Residential Energy Credit” Form;
- Include any labor costs for the installation of your solar system on part 1 line 1 of the 5695 form.
- The amount will include pipes and or wiring connected to your home during the installation process
- Solar roofing tiles and solar roofing shingles can count in the total credit noted on your form. When in doubt, ask a tax professional if they qualify.
- Structural components of your roof or deck that do not directly aid in solar energy generation, do not qualify. So if you needed to replace a few things to keep your roof in working order, leave that amount off.
- If you installed a solar system on more than one of your residential properties, combine the total cost of both on your form.
- If you and a neighbor shared the cost of a solar system to benefit each of your primary homes, both of you can take the nonbusiness energy credit. You figure your credit on the part of the cost you paid. The limit on the amount of the credit applies to each of you separately.
- Be sure your total amount accounts for any utility rebates you might have received. The tax credit is based on the total amount after rebates, not before. However, state rebates do not need to be factored in.
- Grab your calculator and multiply your total solar energy system and installation costs by 0.26 (26%). This is how much you can use as a credit towards what you owe in taxes.
Remember this is a non-refunding tax credit, meaning you can only use the credit against what you owe in taxes. There is no cash refund for this credit. A qualified tax specialist can help you deduct the tax credit amount from your total tax liability.
Install A Solar Energy System To Claim Your Tax Credit
So have you been waiting to install a solar power system? Now truly is the time! The Federal Government is awarding homeowners that take the dive into solar power. We know you won’t regret it and are here to answer any questions you might have.
Have questions or need an estimate on the solar system of your dreams? Give us a call: (805) 203-0540 or send us an email here! SLO Sun Energy has excellent financing options available for any budget and would love to partner with you on your solar power journey.