There’s one thing we can all agree on, that’s how nice getting an income tax deduction can be. Installing solar is an easy way to get one! But you probably already knew that! What you might not know are all the details and how easy it is to cash in on your credit. That’s what we’re about to detail.
First a disclaimer, we aren’t tax professionals, we’re solar experts. So before you do anything with your tax returns consult a professional like a CPA or other tax service professional. This post is only here to give you info to better make your solar purchasing decisions easier.
How does a tax credit work?
Tax credits can be confusing, but they’re quite straight-forward when you learn the details. First off, you’ll need an income to take advantage of a tax credit. Simply put, a tax credit reduces your tax liability, lessening the amount of tax you would owe. The U.S. federal government currently offers a tax credit for newly installed solar power purchases. So, if you were able to get a $2000 federal tax credit for your solar installation, that would mean that $2000 would get taken off of your tax bill.
Important Solar Tax Credit Rules
Here’s a few of the basics to make sure you qualify for the tax credit:
- If you had a solar system installed in 2020, you’ll enjoy a 26% tax credit. The tax credit, which was set to expire in 2021, has been extended. So if you waited on getting solar installed, now is a perfect time to still capitalize on tax credits. You can take advantage of a 26% tax credit through 2022. In 2023, the credit will decrease to 22%. After that it will disappear.
- Your solar system will need to have been installed and generating energy during this tax year.
- It’s important to note, the IRS won’t be coming out to test out your solar panel functionality. They define in service as having had your installation fully completed.
- Your solar panels will need to be installed at either your primary or secondary residence which also needs to be located in the U.S. This part’s easy for most of us!
- You can only count solar panels you own toward your tax credit. That means leased or third-party owned systems don’t qualify. Your solar system also needs to be new, not previously used by anyone, to qualify.
What solar costs are part of the tax credit?
Knowing what part of your solar installation is included in the tax credit is important. Here’s a few of the solar expenses that are included in the tax credit:
- Solar PV panels and cells that are used powering attic fans
- Labor costs that happen onsite at your home. This covers everything from preparation and assembly to installation. It also includes any permitting fees and inspection costs.
- Additional equipment like wiring and mounting parts.
How do you claim a federal solar tax credit?
According to Intuit’s TurboTax it just takes two steps to claim your federal solar tax credit. First, you’ll file IRS Form 5695 with your tax return. This form allows you to calculate your credit. You’ll then enter this information onto your 1040.
Don’t forget about other tax advantages
Here in Colorado, there’s a few more perks not to overlook when you get a solar install. The Sales and Use Tax Exemption for Renewable Energy Equipment makes the cost of solar panel installation exempt from state sales tax. This can save you hundreds of dollars on your install. And, don’t worry about the added property tax a solar installation might cause with rise in property value. Adding solar is a great way to raise your home’s value. The Property Tax Exemption for Residential Renewable Energy Equipment keeps your property taxes from increasing because of your addition of solar.
As you can see, there’s a lot of tax perks to going solar. And they’re all super easy to take full advantage of. Don’t forget the federal tax credit won’t last much longer. Now is the perfect time to get your installation before the tax credits decrease in the coming years and end. Contact Steel City Solar for a free estimate.