When customers contact us about solar panel systems, they want to know about potential tax credits. Understanding the solar tax credit is an important part of your solar purchasing decision. Right now, the 2022 tax credit means that you can get up to 26% of the cost of your system back in federal tax credits. It means a real cost of less than 75% for your system. For people who finance their solar systems over time, it can actually mean having more money in your pocket the year you install the system!
The federal solar tax credit is a credit on your US federal income taxes. They are available for homeowners (individuals) and commercial (business) taxpayers. Solar credits first appeared in the Energy Policy Act of 2005. They were set to expire in 2007 but were so popular that they have been extended through 2023. It is possible that Congress will continue them after 2023, but as of right now residential tax credits go down to 22% for 2023 and expire completely in 2024. Commercial tax credits take an even bigger hit. They are 22% for 2022 and go down to 10% for 2023.
To take advantage of the solar investment tax credit (ITC), your solar system must be in service before the end of the year. You can then claim it on the taxes for that year, which are due April 15th of the following year. So, you would get a 2022 tax credit on your 2022 income tax return, which is filed in 2023.
It is important to understand solar tax credits and tax rebates and the difference between them. A tax credit means you get your total amount of income tax reduced by the amount of the credit. It is great for people who want or need to reduce the amount of money they owe in taxes. Tax rebates work differently and are payable to taxpayers even if they owe no tax. Therefore, to take advantage of the tax credit, you need to have some tax liability. If you owe less than 26% of the cost of the solar system, you can take a partial credit. You can also carry forward the credit or part of the credit for one year, which means that if you cannot take full advantage of if on your 2022 taxes, you may be able to max it out with your 2023 taxes.
Claiming the solar tax credit is easy. Whether you file individual deductions or choose the alternative minimum option, you can claim the solar tax credit by filing tax form 5695 with your tax return. Contact NJ Solar Power today ti find out more, we have here to make sure you have a full understanding of solar tax credit!