One of the biggest questions potential customers have for us is whether they will qualify for a solar tax credit. For almost all customers who purchase solar, the answer is yes. It is easy for people to qualify for the solar tax credit as purchasers. However, some people lease their solar panels instead of purchasing them. While leasing is often less expensive, it may not qualify you for the tax credit.
Tax credits are not the same as tax deductions. Instead, tax credits are reductions in the amount of tax you owe. In addition to being able to reduce your tax for 2022, if you do not use the entire amount of the credit you can carry it forward to later tax years.
Federal Residential Solar Credit
The federal residential solar energy credit, which is sometimes called an investment tax credit (ITC), is a solar tax credit that personal property owners can claim for the costs of materials and labor to install a solar photovoltaic (PV) system.
To qualify for the 2022 solar tax credit in NJ, you must purchase a PV system and have it put into service during the 2022 tax year. The law does not define what it means to place the system in service. However, so far the IRS has considered complete installation to be the same as placing it in service.
The ITC has been in place for years and was extended in December 2020. The amount of the credit has declined, and the credit is scheduled to expire in 2024. While it will probably be renewed until it is renewed we have to assume that it will be gone after 2024.
Claiming Your Solar Tax Credit
As of right now, there is no maximum amount that you can claim for the ITC tax credit. However, the amount you claim is based on the total cost of your system. You can include parts and labor that are directly related to your system. However, you cannot claim associated costs. For example, if you need to replace your roof before installing rooftop solar panels, the cost of your new roof is not considered the cost of installation.
You can claim the ITC on primary and secondary residences. In addition, if you live in a community setting that has a solar project, and you use that solar to provide energy for your home, you can claim the credit for your portion of the project. A great example of this would be solar projects in condominiums. The solar system has to be new or put into use for the first time. It can also only be claimed on its first installation.
If your system is placed in service during 2022, the ITC is 26% of the purchase and installation price, including sales tax.