If you’re thinking about investing in solar for your home or business, now is the time to act! In addition to the many benefits and substantial savings solar brings it also comes with some pretty significant tax breaks. One of the biggest tax incentives for solar customers is the Solar Investment Tax Credit (ITC).
This year’s Inflation Reduction Act is delivering a welcomed surprise to those who do not yet have solar by increasing the solar tax credit to 30%. The plan is also extended to the end of 2032. This is excellent news for businesses and homeowners alike.
What is the Solar Investment Tax Credit?
The Solar Investment Tax Credit (ITC) is a federal tax credit for residential and commercial solar installations. The credit is based on a percentage of the solar installation cost and is applied against your federal income tax liability. The current credit is 30% of your total qualifying cost.
The credit was set at 26% for systems installed in 2022, with a scheduled reduction to 22% in 2023 before being completely phased out in 2024. However, Americans who installed solar in 2022, anticipating a 26% credit, will now be eligible for 30%, entitling them to an extra $1,000 tax credit on a $25,000 solar or battery system.
You’ll Save Money
It’s important to remember that the Solar Investment Tax Credit is a credit, not a deduction. This means that it directly reduces your tax liability and can result in significant savings.
For example, if your solar installation costs $25,000, you could receive a tax credit of $6,500 (26% of $25,000). This can help offset the upfront costs of the installation and make it more affordable.
How to Take Advantage of the Solar Investment Tax Credit
Taking advantage of the Solar Investment Tax Credit is simple. Your installation must be scheduled before December 31, 2032, to be eligible for the 30% credit. After December 31, 2032, the credit will expire for residential installations and drop to 10% for commercial installations.
You must also purchase the solar panels or enter into a lease or power purchase agreement that spans at least five years. The installation must also meet certain performance and quality standards to qualify for the credit.