Do You Qualify for the Solar Tax Credit?
The solar industry has seen some impressive growth in the past few years. This is mostly because people are more understanding of the impacts of climate change. They also want to lower their energy costs because solar has become one of the most affordable sources of energy in the country. The US has more than 64.2 GW of installed solar power that is enough to power more than 12.5 million homes. Still, this power accounts for just 1.6% of the total electricity generation. Further, there are more than 1.47 million solar panels in the US. In this article, we will look at the solar tax credit that might be available to you.
What is a Solar Tax Credit?
In the past, installing solar panels was an expensive process. To incentivize more people to have solar panels, the government came with a federal tax credit system. The system is also known as the investment tax credit (ITC). It allows solar owners to deduct 30% of the cost of installing a solar system from your taxes. This system applies to both households and companies. The credits offered are available through the end of this year. This year, the tax credit will be 30%. It will then decline to 26% in 2020, 22% in 2021, and 10% in 2022. After this, the tax credit will disappear, unless congress passes another credit bill.
While the current solar tax credit was passed in 2015, the original idea of a solar tax credit was mooted in 2005 by the Environment Protection Agency (EPA). Because of how popular the credit has become; congress has continued to extend them. This will likely be the case before 2022 but this will depend on the composition of congress.
Who Qualifies for the Solar Tax Credit?
As mentioned, the solar tax credit is available to individuals and companies in the US that decide to move to solar. Not all solar power receives the credit though. The qualifying equipment must be capable of heating water and generating electricity. In addition, they apply for improvements you make to your residence. Also, the government designated certain areas to receive this tax credit.
What are the Advantages of the Solar Tax Credit?
The main benefit is that it makes owning solar energy more affordable to people and companies. This is because you can claim 30% of the installation costs. For example, if your solar system costs $20,000, you can claim $6,000. This is a lot of money. In the US, the average cost of installing solar is between $10k and $14k.
Another advantage is that it helps to reduce your carbon footprint because solar energy does not emit any carbon. Finally, the solar tax credit encourages people to own their solar energy instead of leasing.
How Do You Qualify for the Solar Tax Credit?
Qualifying for the solar tax credit is easy. First, your solar system must be installed by the end of the year. Second, you must be the homeowner. As such, it does not apply to you if you are renting your house. Finally, you must be the owner of the solar panels and the system. If you meet these qualifications, you can claim the credit.
How to Claim the Solar Tax Credit
Claiming the solar tax credit is easy. In the past, your system needed to be up and running to make a claim. Today, you can make the claim as soon as the installation process starts. You need to add costs like the solar panels, the permission fees, tools and equipment, engineer fees, and electrician fees among others. To make the claim, you need to confirm whether you qualify for the credit. You then need to gather all the receipts, complete the IRS form 5965 and add the credit to form 1040.
The solar tax credit has done a good thing to people and businesses who are thinking of moving to renewable energy. It has helped them reduce costs and reduce their carbon footprint. Therefore, if you are thinking of going solar, we recommend that you find out whether you qualify and then apply.