Important Information You Need to Know About the Federal Solar Tax Credit
Updated: Feb 23, 2021
Did you know that you could qualify for a pretty substantial federal tax credit for installing solar panels on your Indiana home? It’s true. This helpful government program makes it more affordable than ever to switch to a cleaner form of energy.
To help you understand the process, our knowledgeable team at Morton Solar has put together this quick guide to help you out. Keep reading to learn how this program can put big bucks back in your pocket.
How Does the Federal Solar Tax Credit Work?
Also known as the investment tax credit (ITC), the federal solar tax credit allows property owners to deduct up to 26% of the cost of installing a solar panel system. The tax credit is only applicable to those who wholly own their systems and not those who lease equipment. And, if you do not have enough tax liability to utilize the credit, you can roll it into multiple years to take advantage of the savings as long as the credit is in place.
Why was this created? Congress wanted to give citizens an incentive to make the switch to cleaner energy. The ITC was originally part of the Energy Policy Act of 2005. However, with so many people taking advantage of the tax savings, it has been extended for multiple years.
Timeline for Claiming Your Tax Credit
If you plan on taking advantage of the federal solar tax credit, you’ll want to know a few important deadlines. Between 2016 and 2019, the tax credit remained at 30% of the cost of your system. This was amended to the current 26% for 2020, 2021, and 2022. In 2023, it will drop down to just 22% and bottom out in 2024 at 10% for commercial projects.
This means that the clock is ticking on getting the maximum tax savings from installing a solar system. Those waiting a few years to jump on the opportunity could lose out on rebates totaling thousands of dollars.
How to Claim the Tax Credit for Installing Solar
Claiming the federal solar tax credit is done when you file your taxes. In most cases, you’ll just need to show your accountant or trusted tax preparer the invoices for the installation of your solar system. They will be able to file the applicable forms on your behalf, as well as determine if it is worth it to take the entire credit the first year or to spread it out.
Those filing their taxes themselves will want to pay special attention to IRS Form 5695. This is the actual documentation necessary to claim the ITC. If you are not sure how to do this or need help, please contact a certified tax professional for guidance.
Does the Tax Credit Cover Businesses Who Install Solar?
This is a really good question. There are many businesses in Indiana that want to go solar, but don’t know if it would be an advantage to do so. The answer is yes, commercial property owners can qualify for the federal solar tax credit.
The best part about this news is that the parameters are still the same. Currently in 2021, you’re able to deduct 26% of the solar system costs. Again, you must own the system and cannot be on a lease plan. When you’re talking about a farm, commercial office building, or other structure with a large square footage, this could add up to a pretty substantial savings. Not a bad way to offset your tax liability while switching to clean energy.
Frequently Asked Questions: Federal Solar Tax Credit
Of course, it is normal to still have questions after learning about the federal solar tax credit. Here are a couple common ones most people have.
If I Have a Lease with a Solar Installer, Can I Claim the Tax Credit?
No. You must fully own your system in order to claim the tax credit. A lease means that your provider owns the equipment, which disqualifies you for the ITC. However, if you take out a loan for your solar energy system, you are still eligible.
Is Installation Included in the Amount I Can Deduct?
Yes. The full cost of installing solar panels is included in the percentage of what you can deduct from your taxes. This includes labor costs associated with adding them to your property.
Is There a Cap of How Much I Can Claim?
No. You are only capped at the percentage of your credit, not an actual dollar amount. This is a huge advantage for those looking to add solar to commercial buildings.
Wrap Up: Getting a Federal Tax Credit for Installing Solar
The federal tax credit for installing solar at your home or office can be a great way to offset costs. Are you ready to learn more? Please contact our team at Morton Solar today to receive a no-obligation quote.