The Alphabet of Solar Tax Credits
More and more families in the United States are considering switching to solar energy but presumed high costs of such transition might be a throw-off to some. Luckily, federal and state tax credits can help ease the change from traditional to solar energy. In this blog, we discuss solar tax credits available to American families and businesses as of 2022.
Federal Tax Credit
A federal solar tax credit reduces the amount of taxes you pay linked to purchasing photovoltaic systems. According to the addition to the Investment Tax Credit passed in late 2020, the federal tax credit for solar systems purchased in 2022 is 26 percent. If the solar panel is installed in 2023, the federal tax credit will be 22 percent. Therefore, if the federal tax credit is a factor in purchasing a solar panel this year or the following year, it is more beneficial to complete the purchase in 2022.
As of early 2022, the federal solar tax credit for 2024 and beyond is unknown, but the trend of supporting citizens willing to purchase solar panels will likely continue. However, given that the federal tax insensitive for solar installation in 2019 was higher at 30 percent, it seems that it makes more sense to install solar panels as early as possible.
Conditions For Federal Solar Tax Credit 2022
Here are the conditions that make you eligible for receiving a federal tax credit in 2022:
- You are the owner of a solar panel. You do not simply lease it from the company.
- The tax credit should not exceed your tax liability.
- You purchased your solar panel system before December 31st, 2023 (The incentives that will be available past this date remain unknown. If Congress does not renew the incentive, it will expire.)
- The solar system is installed in the United States.
- The solar system is new, and you have not claimed the tax credit before.
- The solar system has been placed in service.
- The solar system does not necessarily have to be connected to an electrical grid to be eligible for a solar tax credit.
- The eligible system for the tax credit has to be located either on your primary or secondary property or the off-site community solar property. If the property where you are willing to install the solar panel does not qualify as either of those things, you will not qualify for a federal solar tax. In case it is an off-site project, the generated electricity should not exceed the energy consumption in your home.
- The exact location of the solar system on the property does not matter.
- To claim the credit, attach a form to your federal tax return.
The federal tax credit includes all essential elements of the solar system, including panels and cells, labor and installation costs, wire and cable, mounting installations, equipment, and energy storage equipment. With energy storage equipment, you can include it into your federal tax incentive even if it started operating the next year after you installed the solar system.
State Solar Tax Credits
State tax credits operate similarly to federal tax credits, but the consequential reduction in taxes is on state taxes rather than federal ones. Some states have large state solar tax incentives. As of 2021, a state solar tax in New York, for instance, is 25 percent. States like California and Texas also offer large state tax credits. State solar tax credits are determined by state legislation.
Be aware that if you are eligible for both federal and solar tax credits, the result is not the sum of a federal plus solar tax credit. With a state tax credit, federal taxable income is higher. Therefore, the result you will receive will be a certain proportion.
Additional Incentives
- Government Rebates On A State Level: Rebates are short-term opportunities available in some states that reduce costs up to 20 percent. The rebates are available for a limited number of solar projects. Aside from the states, rebates can also be offered by utility companies.
- Solar Renewable Energy Credit is a certificate that is sometimes gifted by the authorities.
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Other State Or Utility Loans. To learn if there are other incentives, check locally.
- Property Tax Abandonments For “Green'' Property. These are the subsidies for property that runs on green energy. For example, these are offered by Texas.
- Net Metering. In California, North Carolina, and Florida, you will be credited for any excess energy generated by your solar panel.
