Alternative energy solutions have been a topic of much science and debate over the years, and many Americans are choosing to install solar panels in their homes to reduce electricity and home energy costs. The recent Inflation Reduction Act is now giving even more incentive to do so, offering major tax breaks for installing solar panels. With the new legislation’s Residential Clean Energy Credit, you can subtract 30 percent of the cost of installing solar heating, electricity generation, and other solar home products from your federal taxes.
There has never been a better time to switch to solar! Here’s how it works:
What Is the Residential Clean Energy Credit?
With the Inflation Reduction Act’s Residential Clean Energy Credit, those who install solar energy equipment in their residence any time this year through the end of 2032 are entitled to a nonrefundable credit off their federal income taxes, equal to 30 percent of eligible expenses. There’s no dollar limit on those expenses; you’re entitled to that 30 percent tax break whether you spend $20,000 or more than $100,000 on costs associated with a residential solar system.
This 30 percent credit lasts until Dec. 31, 2032. It will drop to 26 percent in 2033, 22 percent in 2034, and will end in 2035 unless Congress decides to continue it.
Applicable expenses include:
- Solar photovoltaic (PV) panels
- PV cells used to power an attic fan (but not the fan itself)
- Contractor labor for onsite preparation, assembly, or original installation
- Permitting fees, inspection costs, and developer fees
- All equipment needed to get the solar system running, including wiring, inverters, and mounting equipment
- Storage batteries (you can claim the tax credit for these even if you buy and install them a year or more after you install the solar system)– these battery storage units must hold at least 3 kilowatts
- Sales taxes on eligible expenses
How Does A Tax Credit Work?
This credit is meant to lower your federal income taxes. So, 30 percent of whatever you spent on your solar install will then be deducted from the federal taxes you owe for the year. If the 30 percent of your solar costs is larger than what you owe, the remaining credit can get carried over into the next year.
In addition to the money saved through this tax break for solar panels, homeowners will save money in electricity bills, and will also raise the value of a home when it comes time to sell. The exact amount saved will depend on many factors, such as the amount of electricity a household uses, the size of the solar panels, and how much sunlight is received, as well as local electricity rates.
Who Can Receive This Solar Tax Credit?
This tax credit is available to all American tax payers of all tax brackets. It applies to any primary or secondary residence within the US. Tax payers must purchase a solar panel system, and not lease one, to receive these benefits. These credits can be used whether you itemize your taxes, or take the standard deduction.
The same applies if you are a member of a power-purchasing cooperative. However, if you are a tenant-stakeholder in a co-op, you can claim credit for your portion of the purchase. You can also claim credit for your portion of the purchase of a community-owned solar system.
What if I Already Receive a Tax Credit for Solar Install (State or Federal)?
If you are already receiving a state tax break for solar panels, it will be up to your state’s taxing authority whether your state credit is reduced if you take advantage of the federal one. The new law doesn’t reduce your federal credit if your state also offers one.
For example, New York does not cut its solar incentives for people who take advantage of federal ones; state residents can credit 25 percent of qualified solar energy system equipment expenditures from their state taxes, up to $5,000. You don’t get a refund if that amount is more than what you’d owe, but you can carry over the difference for up to five years.
The new law also includes an improved Non-business Energy Property Credit. This credit covers other qualifying energy efficiency upgrades, such as Energy Star certified exterior windows, Energy Star certified exterior doors, air-sealing insulation, upgraded electrical circuit panels, and heat pumps. You can claim both credits on your federal return. Depending on when the installations are completed, this could be done either in the same year or different years.
This credit, now named the Energy Efficient Home Improvement Credit, has dollar caps for some products—for example, $600 on windows. For most items, however, you can claim 30 percent of the cost up to $1,200 total annually. (Heat pumps are exempt from the per-item or per-year maximums; you can claim up to $2,000 for heat-pump purchase and installation costs.)
You can also claim the Nonbusiness Energy Property Credit every tax year through 2032. In the past, taxpayers who exceeded “lifetime limits” for qualifying home improvements under that provision couldn’t claim the credit for later improvements.
How Ethical Energy Can Help
It has always been a great money-saving decision to install a solar energy system for your home, and this is true now more than ever before! Not only can solar panels lower your home electricity costs and increase the value of your home, but the cost for installation and solar panel maintenance in recent years has become much more affordable for the average home-owner. With the new law that offers an added tax break for solar panels, the benefits far outweigh the hassle. Now is the time to contact a reputable solar energy company who can help you to take the next steps!
Ethical Energy is a leader in solar panel installation. We pride ourselves on using cutting edge technology with smart best practices to save our customers money without sacrificing quality or service. Contact us today or call us at (888) 909-6377 to discuss the next steps you need to take to start your solar journey!