Great news from the solar energy world–the federal solar tax credit, previously set to cap out at 22% in 2023, has now been extended AND increased!
It’s no surprise that the general enthusiasm for solar power in homes and businesses is on the rise. According to the Solar Energy Industries Association, solar energy has ranked either first or second in energy capacity added to the U.S. for the past 7 years.
In order to promote clean, green energy and a healthier environment for all, homeowners who install solar systems on their residences are eligible for an increased credit in the form of a tax deduction for the next decade. Curious to learn more? Read on for our breakdown of the solar tax credit as updated in 2022!
What is the federal solar tax credit?
If you install solar energy equipment in your residence any time this year through the end of 2032, you are entitled to a nonrefundable credit off your 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.
Previously, this credit was set at 26% through the end of this year, 22% for 2023, and was going to expire completely in 2024 and beyond. With the new Inflation Reduction Act approved by Congress last week, homeowners can now enjoy a larger credit for a longer period of time.
How does this solar tax credit work?
According to the Department of Energy and the new law’s language, the same expenses covered under the old law are eligible for this new solar tax credit:
- 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.)
- Sales taxes on eligible expenses.
Who is eligible for the new solar tax credit?
In order to qualify for the solar tax credit, you must own your home (not lease or rent). Even if the solar energy system is not on your primary residence, you’re still eligible. As long as you own the property and live in it for part of the year, you can still claim part of the credit on your taxes to reduce the amount that you owe. This means that a property you own but rent out full-time wouldn’t qualify.
There has truly never been a better time to invest in solar! Chat with one of our friendly solar experts to learn how a solar power system can benefit you, your home and your taxes. Contact us today!