Over the past decade, the cost of solar panels has dropped by an average of 60% each year. With this dramatic decrease, installing panels is more affordable than ever. However, solar panel tax credits can make it even more affordable to take advantage of this green energy source.
Let’s take a look at how you can get the most out of your solar panel tax credits.
1. Federal Tax Credits
If you buy solar panels, you may have the opportunity to offset some of the costs through a tax credit for solar panels. For the Federal tax credit, the credit is based on a certain percentage of your total cost.
Since it is a credit and not a deduction, you can simply deduct this amount from your tax bill. This is much better than a deduction which only takes a portion off your taxable income.
2. State Tax Credits
In addition to the federal tax credits, you may also be eligible for a state tax credit for solar panels. Each state offers its own credits, rebates, and renewable energy certificates. This means the amounts and qualifications for each one will be different.
Make sure to check what your state offers for its solar panel tax credit. In addition, you should see if your local utility company offers any rebates as well.
3. Make Sure You Qualify
Tax credits for solar panels require that you qualify by meeting a few requirements. This includes that your solar panels be installed on a US residence. This can include a house, mobile home, condominium, houseboat, qualified manufactured home, or cooperative apartment.
You should also make sure that the type of equipment that you have qualifies for the credits. This includes a few different types, including units that generate electricity or heat water.
It’s important to note what types of systems do not qualify. This includes a system that you lease or use to heat a hot tub or swimming pool.
4. Remember to File
When it comes to the Federal tax credit, you’ll need to file IRS Form 5695 when you file your tax return. Part 1 will help you calculate your credit, which you can enter on Form 1040.
If you didn’t file for the credit in a previous year, you can file an amended return. If your credit is larger than your tax bill, you won’t be able to get a refund for it. Instead, the remaining credit will carry over to the next tax year.
5. Take Advantage of the Best Credits
Taking the Federal tax credit for solar panels is best done sooner than later. This is because the credit is slowly being phased down. Eventually, it will no longer be available.
If you placed equipment between 2017 and 2019, you would be eligible for a credit of up to 30% of the cost. Equipment placed between 2020 and 2022 is worth up to 26%
However, if you place equipment in 2023, a 22% credit will be available. After this, you’ll no longer be able to claim a tax credit.
Maximize Your Solar Panel Tax Credits
Solar panel tax credits are a great way to offset some of the installation costs of installing solar panels. Make sure you qualify and then file to receive this credit as part of your tax return.
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