How does the Solar Tax Credit Work?

How does the Solar Tax Credit Work?

The environment wins again with the passing of the renewed Solar Tax Credit this 2022!

We’re on the precipice of major changes toward sustainability and advocating for more conscious actions that’ll help delay the effects of climate change; this government incentive is proof that we’re moving in the right direction.

Under the Inflation Reduction Act, the Solar Tax Credit, equivalent to a 30% tax credit that you can claim on your federal income tax, has been extended until 2032.

Now, let’s briefly examine the facts about the Solar Tax Credit and how it benefits you.

What is the Solar Tax Credit?

If you’ve recently installed a solar panel system in your home or you’re planning to between now and 2032, you’re eligible for a 30% tax credit for expenses relating to its installation.

There is no cap on the amount; so whether your expenses are at $20,000 or $100,000, you’d still be able to you can avail of the tax credit.

Am I eligible for the 30% Solar Tax Credit?

The solar tax credit applies to those that installed their solar panel system within the US and if it’s on your primary or secondary residence.

In addition, only solar panels that are newly installed are the only ones that can make a claim and it only applies to those who purchase their solar panel system; meaning, those who’ve chosen to lease will not be eligible and the 30% tax credit will apply to the lessor.

What expenses are covered by the Solar Tax Credit?

According to the Energy Efficiency & Renewable Energy (EERE), these items are covered:

  • Solar PV panels or PV cells
  • Labor costs for installation, permits fees, inspection costs, and developer fees
  • Equipment used for the installation such as mounting equipment, wiring, inverters, etc.
  • Solar batteries
  • Sales taxes on eligible expenses

How do I benefit from the Solar Tax Credit?

With the Solar Tax Credit, purchasing a solar panel system is now more accessible and affordable.

For example, if you spend $20,000 on your system, $6,000 (30%) will be deducted from your federal taxes. If you owe less than the 30% amount in taxes before the credit, say $5,000, the remaining $1,000 will be rolled over to the next tax year.

Decades ago, such things were unheard of, not to mention the cost of solar panels was much more expensive then. But now that the government is more aware and more proactive about how we’re to take care of our environment, laws such as this pave the way for change.

There are also zero-down payment plans that further encourage you to make the switch to solar and the biggest benefit of all is the long-term effect it has on your monthly bill.

Be surprised by how much your electric consumption from the grid will decline. 

How can I claim my Solar Tax Credit?

Here are some quick sources to help you claim your Solar Tax Credit:

  1. IRS Form 5695
  2. Instructions for Form 5695
  3. Schedule 3
  4. IRS Form 1040
  5. Instructions for Form 1040

The best way to go about the process is by consulting with a tax expert and your solar provider to ascertain that all details are correct so that you can file accordingly.

Key Takeaway

Solar panels are the future! 

As more countries are making the change to switch to renewable energy, it shouldn’t come as a surprise that incentives are being offered to anyone that joins the cause.

We need an infinite source of energy and that’s what the sunlight provides – out with the old ‘dirty energy’ and in with the new ‘clean energy’. 

And, not only will you reap a lot of benefits from government incentives when you go solar, but you’re also looking at a significantly lower monthly bill. That’s a win that we all need today.

To have your home assessed by Sunlight Solar, contact us at (804) 452-7699 or send your power bill to Service@SunlightSolarVirginia.com for a free proposal.