Homeowners always like to save on their utility bills, and there are several tax breaks that are available for people who have installed solar panels on their homes. Reducing monthly energy expenses, finding tax credits and helping the world with a smaller foot-print is a wonderful opportunity.
In 2020, the federal spending bill that was extended the solar panel tax credit that has been affect for more than 10 years. It was extended by another five years and is making solar energy more affordable for millions of homeowners. 2020 looks to be another great year for homeowners to maximize tax-deductions with renewable energy incentives. Let’s examine the best tax-breaks for homeowners using solar and renewable energy.
Take advantage of local, state and federal government incentives with attractive tax credit on solar and renewable energy.
The federal solar tax credit is better known as the investment tax credit. It allows homeowners to deduct 30% of the cost of installing a solar system on your home, from your federal income taxes. The ITC is in effect for residential and commercial solar systems. There is no cap on the price of the system. Because of the ITC, the average homeowner can save $5,000 or more by installing a solar panel system.
The federal ITC was first set up by the Energy Policy Act of 2005 and was supposed to expire at the end of 2007. Several extensions pushed this date back until the end of 2016. But many experts thought that another five-year extension would be beneficial for the solar industry. Because of the spending bill that was passed at the end of 2015, the federal tax credit is now an option for homeowners in one form or another through 2021.
- 2016 to 2019 – The federal tax credit is 30% of the cost of the solar system. This means that you can still get a discounted price for the cost of your system in 2018 and 2019.
- 2020 – Owners of the residential or commercial solar system will be able to deduct 26% of the cost from their taxes.
- 2021 – Owners of the residential or commercial system will be able to deduct 22% of the cost from their taxes.
- 2022 – Owners of the solar energy system can deduct 10% of the cost from their taxes.
Also, in earlier years, owners of the systems could not claim a federal tax credit unless the system was actually functioning. Now, federal legislation allows them to claim it as soon as the system is built, as long as it is working by December 31, 2023.
Do You Qualify for Renewable Energy Tax Deductions?
As long as you own your system, you can qualify for the federal solar tax credit. Even if you lack enough tax liability to claim the credit in one year, you are allowed to roll over the remaining credits into future years, as long as the credit is still in effect. But you should remember that if you sign a lease with your solar installer, you are not the owner so you cannot get the tax credit.
Eligible homeowners can claim their solar tax credit when they file their tax return each year.
More Information About Solar Tax Credits
One of the incentives that some home owners may not be aware of has been recently extended by the Internal Revenue Service. Developers of solar and renewable energy can claim a 30% tax credit for their solar projects as long as they can prove that they started construction by the end of 2019, according to a recent IRS notice. This means that breaking ground or investing in 5% of the total expected costs of installation, and they have until the conclusion of 2023 to complete the projects.
The guidance on this extended investment tax credit was better than the solar and renewable industry anticipated, according to experts at Credit Suisse Group AG. For projects that start construction after Jan. 1, 2020, the credit will be reduced to 26%. The incentive will also apply to fuel cell power plants and small wind turbines.
This news announced by the IRS is good news for large solar developers who will be able to avoid high solar tariffs that are imposed on imports through 2021, by most of their solar panels in future years and still qualify for the bigger tax credits.
On the state side of things, some offer additional tax breaks for the installation of a solar panel system. With a tax credit in your state, you can deduct part of the cost of the system from your state taxes.
Some homeowners also may be able to get a cash rebate from their state, municipality or utility company that wants to increase the number of people using solar energy.
References: https://www.energysage.com/solar/cost-benefit/solar-incentives-and-rebates/ and https://www.bloomberg.com/view/articles/2018-09-25/china-and-india-are-not-giving-emerging-market-investors-hope