As if inflation wasn’t eating up your whole paycheck already, electricity costs are on the rise, too. Just in the last year, the average price per kilowatt hour in the United States has gone up nearly one and a half cents. When the average is 16.14 cents per kilowatt hour, that one-cent increase is pretty significant!
Using solar tax credits to help you cover the cost of solar panels is a great way to gain independence from the rising cost of electricity. Not sure how solar incentives work? Read on to learn everything you need to know about solar panel tax credits!
What Is the Federal Solar Panel Tax Credit?
The US has had many iterations of solar panel incentives on a federal level, but the biggest one came in 2022. The Inflation Reduction Act produced the Residential Clean Energy Credit. It is a tax credit that reduces your federal tax liability by equal to 30 percent of the cost of the solar panels.
Who Qualifies for It?
The Residential Clean Energy Credit is only available to the people who own the property on which solar panels are installed. You must also have a taxable income in order to utilize the tax credit. Finally, the system must be on either your primary or secondary residence, and you can only claim it on the original installation of the panels.
People who purchase solar panels utilizing solar loans qualify for the credit because they own the system. The credit applies to all solar panels installed prior to 2033, however, reduced credits are available to people who install panels in 2033 and 2034.
How Much Is It Worth?
The tax credit is valued at 30 percent of your total solar installation costs. That sounds straightforward, but what does it look like in practice?
Let’s say you pay $30,000 for your entire solar system, including installation, your tax credit would equal $9,000. It’s important to note that tax credits don’t save you on costs upfront. You’ll need to front the cost of the solar system and claim the tax credit the following January on your taxes.
The government plans to phase out this tax credit in 2033 and 2034. In 2033, the tax credit drops to 26 percent of the cost of installation, and in 2034 it reduces further to 22 percent. Once 2035 rolls around, the tax credit expires entirely, so be sure to tax advantage of this form of saving with solar before it ends!
What Systems and Costs Qualify?
Installing solar panels on your home involves a lot of different systems and components. Most of those components are covered by the tax credit, thankfully!
The tax credit covers equipment, like the solar panels themselves and the racking, wires, and inverters. It also covers the labor involved in installing the equipment, including fees associated with permits and inspections. Finally, it covers the sales tax for all equipment and labor.
You’ll be happy to know that the tax credit covers systems beyond solar panels. It covers battery storage systems, wind energy systems, solar water hearts, fuel cell systems, and much more. There are a ton of ways to use this credit to make your home more sustainable.
Will I Get a Refund?
US taxpayers are only allowed to claim the federal solar panel tax credit once. Depending on the cost of your setup, your tax credit can be pretty hefty. In some cases, it may exceed the amount you owe on taxes in a given year.
If that scenario happens, you will not receive a refund for the difference between the amount of the credit and what you owe. Instead, the remainder of the tax of credit rolls over for up to five years of taxes.
State Solar Incentives
The federal tax credit isn’t the only solar panel savings opportunity in the game. Lots of states throughout the country offer their residents things like solar panel rebates on top of the federal tax credit. In addition, some utility providers offer credits to customers who utilize solar power in exchange for the energy their system produces.
California has multiple solar panel installation incentives throughout the state.
The first is the Self-Generation Incentive Program (SGIP). This program offers rebates to homeowners who buy and install solar batteries in addition to their rooftop panels. Californians also don’t have to pay property taxes on the added value to their home from the solar panels.
Finally, certain low-income families may qualify for cash incentives if they install solar panels. If you live in San Francisco and Sacramento, local utility companies offer cash incentives for homeowners to install solar panels on their homes.
Texas may be the fourth sunniest state, but the state-wide tax rebates are relatively limited.
Residents who install solar panels do not have to pay property tax on any increased home value as a result of the installation. TXU Energy customers receive credits on their bill for any excess power their home generates. Other utility companies may offer rebates upfront to reduce the cost of solar panel installation.
Colorado has a couple of solar panel savings opportunities for its residents. Like California and Texas, Colorado offers a property tax exemption. It also offers a 2.9 percent sales tax exemption for solar systems.
Xcel Energy and other local utility companies offer incentives for the production of solar power. Xcel specifically offers compensation on a per kilowatt-hour rate for any energy produced by your system.
Make the Most of Your Solar Tax Credits!
Solar panels are a major investment, but they’re also a step toward independence from utility companies and toward a sustainable future. Taking advantage of solar tax credits and other solar panel rebates helps you achieve your energy goals. If you haven’t already looked into solar panels, now is the time to do it!
Do you want to learn about more awesome ways to modernize your home and make it more sustainable? You’ve come to the right place! Check out the rest of our blog for tons of great ideas!