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What You Need to Know About the Federal Solar Investment Credit
Solar is a great investment. At the end of 2020, Congress approved an economic stimulus package for COVID-19 relief which extended the federal solar investment tax credit (ITC) by two years. Originally the credit was set to decrease from 26 percent in 2020 to 22 percent in 2021 and then phase out in 2022 but it was extended.
Residents as well as commercial and utility-scale solar projects can still receive a tax credit based on the total installation cost of the solar system.
What does this mean to you as a home or business owner? 2022 is the last year to claim the full 26 percent credit. The longer you wait, the less money you will be able to save. This year the credit will stay at 26 percent and in 2023 the credit will decrease to 22 percent. At this time, there are no current updates if the tax credit will be continued or renewed, but for now, it is predicted to phase out in 2024.
What is the solar energy credit?
This tax credit is like other tax credits. It’s not a rebate. This credit offsets the balance of taxes due on your individual return. If you don’t have taxable income, there won’t be anything to offset, so you won’t be able to take advantage of the credit. But if you are filing taxable income, then installing solar will help balance that for you. Depending on many factors, in some cases, it may result in money back on a tax return. But not always. It is best to consult a tax professional to find out how you will benefit from the ITC when installing solar.
How do I get my solar tax credit?
The IRS has form 5695 for you to fill out during tax season. You can find this form on various tax filling software or tell your tax professional that you have purchased solar so they can help you with the forms.
What if I don’t owe taxes?
You must have taxable income to qualify. If you don’t receive the full amount of your tax credit, you can roll it over year to year for up to 5 years as long as the ITC is in effect.
How do I qualify for the ITC?
- You must own your own home.
- You must own your panels.
- You must have taxable income to qualify.
- You must install by December 31, 2022, to get the full 26 percent credit. You can also install between January 1 and December 31, 2023, to get the 22 percent credit.
Consult your tax professional for details. Arizona Energy Pro’s solar experts are a phone call away to help you with non-tax-related questions. Give us a call to help you get solar panels on your home!