Wednesday, February 21, 2024
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What to Know About the Solar Tax Credit in 2023

In 2022, the American population installed an immense amount of solar panels to provide electricity for more than 22 million homes. Are you planning to invest in solar power this year?

With the new Solar Tax Credit for 2023, now is the perfect time to start. The Inflation Reduction Act of 2021 changed the credit, making it even more appealing than before. This includes an increase from 26% to 32%, and that’s a significant saving!

Whether you own or rent your home, the Solar Tax Credit could mean significant savings on your energy bills over time and significantly reduce your carbon footprint. It’s a win-win situation with many benefits for homeowners and renters alike!

If you plan to install solar panels this year, learn more about how to take advantage of this fantastic tax credit. Start saving money while also reducing your environmental impact.

What Is a Tax Credit?

Tax credits are a helpful tool. They reduce the amount of money you owe in taxes yearly, which can lower your tax bill or increase your tax refund. Different tax incentive schemes offer further deductions.

What Is the Federal Solar Tax Credit 2023?

Installing solar panels reduces your electricity bills and provides you with a significant federal tax credit. This translates to real money in your pocket as the credit directly offsets what you owe on your income taxes.

Since the federal government implemented the Solar Investment Tax Credit (ITC) in 2006, U.S. solar industry has skyrocketed. There has been a tenfold increase and an average annual growth of 50% over the past decade. Furthermore, this tremendous success has provided hundreds of thousands of jobs fuelled by billions invested into the US economy.

To benefit from the ITC, ensure your solar system is installed and ready to produce electricity in a United States home during a tax year. Now is never a better time to talk to someone about installing solar panels.

How Does It Work?

If you buy a solar photovoltaic (PV) system, you can get money back from the government. This is called a Federal Solar Tax Credit; you can get it when you file your taxes, and it is part of the cost of the system.

For example, in 2021, you were able to get a discount of 26% on solar panels if you installed them between 2020 and 2022. If you install them between 2022 and 2032, you will get a discount of 30%.

The credit may only be claimed once, so keep that in mind. If your taxes owed are less than what you earned in credits, they will be rolled over into the following year. Also, remember that this is a deduction and not an actual refund.

What’s Covered?

Are you a homeowner who just installed solar panels in 2022? If so, the federal government is offering an unbeatable tax credit of 30% on the following:

  • Cost of the solar panels
  • Cost of equipment such as inverters, wiring, and mounting hardware
  • Charges for labor to install your solar panels
  • Costs of fees relating to permits and inspections
  • Costs of storage equipment costs like solar batteries with a capacity rating of at least 3 kilowatt-hours (kWh)

Are You Eligible?

If you want to take advantage of the Investment Tax Credit (ITC), your new solar system must be used for the first time between January 1, 2006, and December 31, 2023.

Unfortunately, this opportunity expires in 2024 unless Congress chooses to extend it further, so take advantage of your chance to benefit from what could potentially be a significant investment.

Other requirements include the following:

  • You must be the owner of the system outright; it can not be leased
  • The solar system needs to be located somewhere in the United States
  • It also should be found at your primary or secondary residence
  • It could be found on an off-site community solar project

To take advantage of the Federal Solar Tax Credit, you must equip your residence with a solar-powered system, and it has to be photovoltaic (PV) or water heating. This is an opportunity to reduce electricity bills and save money in the long run!

Solar water heaters and photovoltaic (PV) systems are eligible for a Federal tax credit using the sun’s energy. Solar water heaters use thermal energy to warm water, while PV systems convert light into electricity.

The Federal Solar Tax Credit: How Do I Claim It?

If you are eligible, after consulting with a certified tax advisor and ensuring all your filing requirements are met, complete IRS Form 5695 before submitting it along with your federal tax return (Form 1040 or Form 1040NR).

Here are the official instructions for filling out this form.

Do Other Incentive Measures Impact the Federal Solar Tax Credit?

Solar customers can take full advantage of the range of incentives to reduce their installation costs, including electric utility rebates, renewable energy certificates, and state-funded government rebates & tax credits. Best yet – these cost savings will directly affect what you report on your annual IRS filing!

Every state has specific solar incentives that can vary drastically. Speak to your installer and check the Database of State Incentives for Renewables & Efficiency to get a more in-depth idea about different agencies’ varying financial benefits.

Thinking of Investing in Solar Power?

The Solar Tax Credit for 2023 is a great incentive and opportunity to save money on energy bills. Investing in solar power could provide significant savings, whether you own or rent. With the Inflation Reduction Act of 2021 increasing the credit from 26% to 32%, now is a perfect time to start looking into it.

If this article has sparked your interest in learning more about taking advantage of the ITC, be sure to check out our blog for more reports on how you can use renewable energy sources!

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