How Does the Federal Solar Tax Credit Work?
The on top of local and state incentives, this federal solar tax credit gives you 26% of the final cost of switching to solar power back in tax credits including supplies, equipment, and labor. Remember, these are not a tax deduction. It is a tax credit.
These tax credits will eliminate any federal taxes you owe on a dollar-for-dollar basis, increasing your government refund until it is used up. This means it has a direct cash value. Very simple.
Example Of Federal Tax Incentive
Let’s say you purchased a $10,000 solar panel system in 2020. You would be able to immediately remove a full $2,600 from your 2020 taxes when filling them in 2021.
The Federal Solar Tax Credit is Schedule
To be eligible to receive the full 26%, you need to install and have your system operating before the 1st day of January in 2021. Below is a list of scheduled changes expected to take place and you should put them into consideration while planning to invest in solar.
2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their federal tax liability.
2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
2022 onwards: Owners of new commercial solar energy systems can deduct just 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.
Frequently Asked Questions
When does the federal solar tax credit expire?
This federal incentive will step down to 26 percent in 2020 and 22 percent in 2021. After 2021, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent. (Source: Dept of Energy)
How do I claim my tax credits?
Filing for this federal solar tax credit is very easy, also. There is a single, one-page form required, plus your receipt from a reputable, licensed solar installer like Sunbridge.
I have no federal tax liability; Am i ELIGIBLE?
The IRS has not been very clear on this point to the date when it comes to the Residential Renewable Energy Tax Credit. However, for businesses they have directly stated that any remaining credit can be passed forward for a full 20 years.
Does Sunbridge Solar file my federal taxes?
No. This is the only incentive we are not allowed to file on your behalf. We are not certified tax accountants and can't give any legal advice. But don't worry, it's simple to fill out! You may find additional support here.
What if I have will already be receiving a refund?
If you are already receiving a refund at the end of the year, this tax credit will usually make that refund much larger since it eliminates your tax liability on a dollar-for-dollar basis.