Many people get confused between the charges of tax credit and solar tax credit. The tax credit is the deduction from the amount of income tax that you owe. Whereas, the solar tax credit is claimed on federal income tax for a percentage of the actual cost of a solar photovoltaic (PV) system or any type of renewable energy. The solar tax credit could be claimed anytime when the businesses or homeowners are installing a new solar photovoltaic (PV) system. There are many tax benefits of installing solar panels.
The solar tax credit is said to be nonrefundable, which means you cannot ask for a refund of the amount that is greater than your tax liability. On the other hand, you can carry over the unused amount of credit for up to 5 years.
Homeowners still can recognize additional savings that may not be obvious on how affordable and beneficial it is to install solar panels. The individuals and property owners who are aware of the tax benefits advantages are switching to solar power. Competitive financing and Lease options are excellent tools at competitive rates that increase the benefits of capturing power from the sun. It directly reduces the income tax liability, minimizes the cost of photovoltaic costs that gives you a quicker return on investment.
Value of Solar Tax Credit
As per the Center for Sustainable Energy, the cost of an average 5-kW residential system is from $15,000 to $25,000, before the tax credits. Some factors determine the price of the PV system, which are components, configuration, size, and option. Moreover, it also includes labor costs, available incentives, and tax credits, and local permitting costs.
The year the system installation also affects the incentives and solar energy credit. The installation between the year 2020 to 2022, the credit percentage would be 26%. Installation in the year 2023, the solar tax credit will be 22%. The current system and solar panels installation tax credit will perish at the end of 2023 for all residential projects. If you are planning to install a solar PV system then do it before the current tax credit expires.
Who is Eligible to Claim the Solar Tax Credit?
There are certain criteria that a person should meet to claim the solar tax credit.
- The Solar PV system should be installed and operating between January 1, 2006, to December 31, 2023.
- You own a Solar PV System which means you have purchased it on cash or financing. Leased solar systems will not qualify for the Solar Tax Credit.
- The Solar PV system should be installed at your residence or off-site community solar project.
- The Solar credit can be claimed on the original installation of the solar PV system, or an existing system that has been re-powered with new equipment of at least 80%.
When you claim for the solar tax credit, you need to fulfill the requirements of IRS form 5695 and submit it with your actual annual tax return. If you have hired a tax professional, they could better guide you with the complete process.