Take Advantage of the Federal Solar Tax Credit

Take Advantage of the Federal Solar Tax Credit

Solar panels are becoming an increasingly popular option for homeowners. It is the perfect option for those who want to be environmentally conscious while also reaping financial benefits such as lower utility rates. This is especially true in California which tends to have a high amount of direct sunlight hours annually.

A recent survey from Pew Research Center found that while only 6% of U.S. homeowners currently have solar panels installed, 46% have given the idea serious thought. One of the major things people are interested in when considering solar is affordability. 

Fortunately, there is currently a federal solar tax credit that makes investing in solar more affordable. 

What Is the Federal Solar Tax Credit?

The Federal Solar Tax Credit is a credit aimed at helping subsidize investment in solar panels for residences. It is a credit in the amount of 26% of the cost of the solar system that you install on your home. This includes the cost of the solar panels and other relevant supplies such as mounting and inverters. It also includes installation costs. 

It is important to distinguish that the Federal Solar Tax Credit is a credit, not a deduction. This means that you will receive a dollar-for-dollar reduction in the amount of taxes that you owe. For example, when claiming credit for $2,000, your tax bill goes down by $2,000. 

How does this work? 

Let’s say you install a solar system on your home this year. The average cost of a solar installation is $20,000. With this tax credit, someone paying the average price would see a credit of $5,200 towards your 2021 taxes, meaning that your overall system cost after this credit would be $14,800. 

It is also important to note that the Federal Solar Tax Credit is only one of many ways to lower the costs of solar installation. Various states and locales offer over tax credits, incentives, rebates, and policies aimed to make solar panels more affordable. In fact, DSIRE has a searchable list of various rebates and incentives for all types of renewable energy installations by state. 

Can I Use the Federal Solar Tax Credit Whenever I Install Panels?

One of the most important things to understand when discussing the Federal Solar Tax Credit is that this is not a permanently available credit. In fact, it is only scheduled to be around for a few more years. 

Solar panel systems installed in 2021 and 2022 will receive a 26% credit. In 2023, the amount of credit will decrease slightly to 22%. In 2024, the credit for residential solar installations will expire completely.

In other words, if you do not install a solar system by the end of 2023, you will not be able to take advantage of this credit. There is the potential that Congress may decide to extend the credit; however, that certainly is not a guarantee as various tax credits expire all the time without being renewed. 

Are There Requirements for Claiming this Credit?

There are a few requirements for claiming the Federal Solar Tax Credit; however, they are relatively easy to meet. 
1. You must install your system before the credit expires. 

2. The solar system must be installed on either your primary or secondary residence. 
There is also an exception for solar systems installed as part of an off-site community solar project. 

3. You must own the solar system.
The credit does not apply to systems that are leased or arrangements to purchase electricity from another system. However, whether you pay in cash or finance your system does not matter – just that you own it. 

4. The credit must be claimed on an initial installation of a system. 
It cannot be used for an upgrade, repair, or any service to an existing system. 

What Are the Benefits of Installing Solar? 

There are many benefits of installing a solar system on your home. Obviously, one of the most commonly cited is the financial benefits as solar systems will generate a substantial return on investment during their lifetimes with the electricity savings. 

Another benefit is simply that solar systems are environmentally sound. Each kilowatt-hour of electricity that you generate with your solar system is an additional kilowatt-hour of renewable energy and one less that creates greenhouse gases. Over time, this has a substantial impact on the environment. 

Solar panels will also provide a substantial improvement in your home value. Research has shown that buyers will pay premiums in order to get a home with solar panels. Additionally, homes with solar panels tend to sell faster than those without, an extra benefit should you ever decide to sell your home. 

Why Do We Care About Solar?

As a company, Mighty Buildings is committed to sustainability. This can be seen in the materials we use, our manufacturing process, and the quality of products we provide. In fact, while there are a variety of reasons why people opt for Mighty Buildings, our eco-friendly nature is one of the compliments we hear the most from clients. 

If you are looking for eco-friendly ways to increase the value of your home, we would suggest that you consider one of our accessory dwelling units. Made with environmentally sound processes, these co-living spaces are an excellent way to increase the value of your home and can provide an in-law residence or a valuable property for rental income. 

Final Thoughts

Solar is increasing in popularity, driven both by decreasing costs of investing in solar power and increasing utility rates. For those seeking to invest in solar power, it is important to understand the Federal Solar Tax Credit. 

This credit is valued at 26% of the cost of your solar system including materials as well as installation. As a credit, this is a dollar-for-dollar reduction of your tax liability. However, if you are interested in taking advantage of this credit, you’ll need to do so quickly. It expires at the end of 2023.