- The United States government offers reductions on federal income taxes to those installing residential solar systems.
- The federal solar tax credit covers a substantial installation cost.
- One aspect that puts off people is the hefty installation cost.
The global push to reduce our reliance on oil and fossil fuels means solar panels are finding their way onto rooftops. Some customers claim savings on their electricity bills as high as $1,500 annually. And this only touches the surface of the advantages of switching to solar.
However, one aspect that puts off people is the hefty installation cost, which can be as high as $24,000 for a 6kW solar array. The US government is offering a federal solar tax credit to offset this investment. If you’re considering a solar PV system, continue reading to learn how you can see up to 30% back on your federal taxes.
What Is the Federal Solar Tax Credit?
In 2019, the United States government started offering reductions on federal income taxes to those installing residential solar systems. The incentive was set to tier off in 2022 but was extended for another 10 years in August. Anyone installing a solar array until 2032 might be eligible for 30% of their installation as credit.
The federal solar tax credit covers a substantial installation cost, but customers must follow eligibility guidelines to qualify. In addition, other incentives can affect the amount of credit that comes back after total calculations.
Federal Solar Tax Credit Eligibility Requirements
A timeframe has been laid out for the incentive. To qualify for a 30% credit, customers must have their system installed between January 1, 2017, and December 31, 2032. The incentive drops to 26% in 2033 and 22% in 2034. The credit is set to end after 2034 unless an extension is amended.
Customers must also have the system set up at their US residence. These types of residences qualify:
- Mobile homes
- Cooperative apartments
While you can collect the incentive on these properties, you’ll only qualify for it for those on which you reside. For example, if you’re installing a solar array on a rental property that you don’t live at throughout the year, you can only claim credit for the percentage of time you stay there.
Customers who qualify for the federal solar tax credit must own the system installed. In other words, they must have paid for the system outright or financed it. Those that sign a lease or power purchase agreement (PPA) are ineligible for any return.
Finally, the incentive only applies to solar systems installed for the first time. This would discredit any used equipment one might otherwise install to save money.
Solar Expenses are Included in the Federal Solar Tax Credit
While installing a solar array in 2022, customers can receive credits on several aspects, including:
- Solar PV panels and cells
- Contractor labor costs, such as preparation, assembly, and installation
- Supporting equipment such as wiring, inverters, and mounts
- Energy storage devices such as lithium-ion batteries (storage devices installed after December 31, 2022, must have a capacity of 3kWh or more to qualify)
- Sales tax on expenses
Remember, any PV or supporting equipment installed must be new (called their “original” install) to qualify for a return on federal income taxes. This excludes any systems used to heat a swimming pool or hot tub.
Other Solar Incentives
Aside from federal solar tax credit, customers might find other incentives to reduce the cost of installation further. Those taking advantage of multiple discounts should know how each one works alongside the federal credit.
Depending on location, several rebates exist for equipment. Many utility companies will offer subsidies for connecting an array to the municipal power grid. These subsidies reduce the cost of equipment before calculating the federal tax incentive. Conversely, some states also offer rebates on solar equipment, which do not affect it.
Some states offer tax credits on solar arrays when calculating property tax. However, this does not reduce the federal incentive but can raise the overall due.
Benefits of Installing Solar
Those that install a solar PV system in 2022 can find themselves with a tax credit of over $6,000 on an average array of 6kW. In addition, some customers claim as much as a 97% reduction in their electricity bill. Other benefits of installing solar include:
- A reduction in coal and fossil fuel use
- A reduction in individual carbon footprint
- Savings on maintenance over the lifetime of the panels
- Potential to sell excess solar electricity to the municipal power grid
Federal Solar Tax Credit: Further Reading
With the US government pushing hard for alternative energy, the federal solar tax credit is an excellent opportunity to save money on utilities while benefiting the environment. Residential solar arrays provide just one benefit of alternative energy. Here are other solar-related articles.