Installing solar panels and battery storage is an investment more homeowners around the country are considering to reduce their cost of energy. Not only does it help offset your dependence on the traditional electrical grid, but it can also end up immensely lowering your electricity bills.
The federal government has come alongside solar installers and homeowners to help encourage people to generate some of their own power. This is part of the Federal Investment Tax Credit or ITC. Discover what the ITC is, how much it’s worth and the details of qualifying for the credit this tax year.
What Is the ITC?
The Federal Investment Tax Credit was originally part of the Energy Policy Act of 2005 and provided a tax credit for solar projects installed between January 1, 2006, and December 31, 2007. It has seen several extensions and modifications over the years, with Congress passing the latest extension in August 2022. This latest extension applies to projects installed between 2022 and 2032.
Solar projects that qualify include not only solar panel installation, but also battery storage systems like Tesla Powerwall—whether purchased as a standalone unit or paired with a solar panel system.
The income tax credit is a non-refundable tax credit. Be sure to work through with your tax professional what this means in your situation. Generally, it means that you won’t receive a refund for any part of the credit that extends beyond your actual tax liability. Keep in mind you may be able to carry any unused portion of the tax credit forward to the following year’s taxes.
How Much Is the Credit?
When the ITC was first passed, it provided a 30% tax credit for residential solar installations. However, the credit was reduced to 26% for the extension that covered installations during 2020 and 2021. A new extension was approved in 2022 that covers all installations from 2022 to 2032, restoring the credit to the original 30%.
The credit extends beyond the simple cost of the solar panels too. In fact, it also covers the labor for installation, including permitting fees, inspections and developer costs. It also covers other necessary equipment such as wiring, mounting hardware and assemblies, inverters and battery storage units.
The cost of a solar panel system depends on your home’s electrical demand and your desired production. The more power you consume, the larger storage and generating capacity you may want from your panels. The original ITC set a cap at $2,000 for the credit, but the current extension does not impose a cap.
How Do You Qualify for the Credit?
The first step to qualifying for the tax credit is installing your system during covered years at one or more of your residences. This credit is even applicable on properties other than your primary residence, including vacation homes.
You must purchase the system so that you ultimately own it. The credit does not apply to leased systems. Purchased equipment that isn’t yet installed does not qualify for the credit.
Finally, you need not actually be the property owner to qualify for the credit. Rather, you must have contributed to the cost of the solar panel system, either in part or in whole. Your credit will reflect the portion of the system that you directly funded. This allows for some credit for coops, condos and other situations where you do not own the real property.
What Are Some Other Incentives?
There are many incentives out there to help reduce the overall costs of implementing solar energy for your home. Taking advantage of the ITC is definitely one of the prominent ones right now.
In addition to saving 30% on the cost of purchasing and installing solar and battery storage solutions, you’ll save money on your monthly electrical costs. Not only that, installing solar technology on your home can contribute to increasing its value if and when you sell it.
When people around Gonzales, Seguin and surrounding areas want dependable solar, they turn to GVEC Solar Services. Our expert, noncommissioned installers and technicians offer solar system design, installation, maintenance, and even removal and reinstallation. Call to schedule a consultation with our team to ensure you don’t miss out on the incredible tax incentives available.