If you own some sort of solar energy system for your home, no matter how old or new it is, you’ll be delighted to know that it comes with some additional benefits. Aside from the money you save on electricity costs and the positive impact on the environment, your solar energy system also makes you eligible for the solar investment tax credit.
Unfortunately, The Solar Tax Credit can be one of the more misunderstood solar incentives. However, if you are employed and have some sort of taxable income, chances are you are able to take advantage of this incentive. If you’re into the idea of saving money, then continue reading – this was written for you.
A brief history of the solar investment tax credit
The solar investment tax credit, or ITC, was officially put into effect in 2006 via the Energy Policy Act of 2005. Although it was scheduled to expire in 2007, its popularity and effectiveness in promoting a more environmentally-friendly economy, the U.S. Congress decided to extend the expiration date several times. At the same time, the solar tax credit helped the solar industry to grow by a whopping 10,000 percent.
How the solar investment tax credit (ITC) works
As mentioned earlier, you are eligible for the ITC as long as you own some sort of solar energy system for your home. The investment tax credit allows you to deduct from your federal taxes a whopping 30 percent of what it cost you to install your solar energy system.
Whereas the credit used to only apply to residential systems, it now applies to commercial systems as well. To make matters even better, the government doesn’t put any cap on the value the 30 percent credit applies to. Meaning, the ITC is a dollar for dollar tax credit worth 30 percent of your solar project costs, regardless of that value. Therefore, many homeowners have been able to save nearly $9,000 on installation costs by taking advantage of the ITC.
Current and future expectations for the ITC
As of today, the ITC is active and applicable for all homeowners who utilize some form of solar energy system through 2021. However, the Solar Tax Credit is slowly in the process of “sunsetting”, meaning that it is expected to be phased out. It was recently set to expire in 2015, but it was, of course, renewed through 2019. The regression schedule of the ITC is as follows:
- 2016 – 2019: The ITC will remain at a massive 30 percent of the cost of your solar energy system.
- 2020: The ITC will be reduced to a 26 percent federal tax credit on the cost of residential and commercial systems.
- 2021: The ITC will be reduced to a 26 percent federal tax credit on the cost of residential and commercial systems.
- 2022 onwards: In 2022, residential solar energy systems no longer receive a federal tax credit. Commercial solar energy systems will receive a 10 percent tax credit going forward or until further notice.
As we move forward, the solar tax credit will work on a “commencement” standard. This means that if construction on the solar project is started before the end of the year, it can be claimed in that taxable year – regardless of completion. Also, the solar tax credit can be carried over to future tax years if the full amount can’t be taken in the first year.
Over to you
As you can see, the Solar Tax Credit is quite the incentive to adopt a solar energy system in your home or business. On top of saving money on your electric bill and benefiting the environment, you’ll receive a whopping 30 percent credit on your federal taxes.
If you’re interested in investing in a solar energy system for your home or business, the good news is that most solar loans will allow you to take advantage of the solar tax credit.
Should you have any questions on whether or not you or your business is eligible for this incentive it is recommended that you contact your accountant as Green Power Energy are not tax experts and, therefore, are not able to give financial advice.”
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