What Is the Federal Solar Panel Tax Credit?
Before you can comprehend how the solar panel federal tax credit works, it helps to understand what it is. It's a financial incentive for homeowners who choose to go solar. It minimizes the cost of installing a solar power system by allowing you to subtract a percentage of the installation costs from your income taxes. There are quite a few different tax calculators available online. Using one can help you determine how your income taxes will be impacted.
The tax credit is roughly 26% of the price of the solar power installation. That also includes the labor costs and equipment. Depending on the average price of solar panels, a homeowner could expect a tax credit of about $4,000 to $6,000.
However, the amount that you receive varies depending on a variety of factors. You'll receive your credit when you file your taxes for the year that the panels were installed.
Let's say your total cost of installation comes to $20,000. You can expect a solar panel federal tax credit of $5,200, which reduces the overall cost of the installation. You can't beat that!
The Tax Credit Percentage
The credit amount that you receive for solar installation won't always be the same—especially as solar energy becomes the norm. At the moment, homeowners are receiving an incentive for their efforts to conserve energy.
But as the years go by, the tax credit will decrease. The 26% credit is expected to only last until the end of 2022. And by 2023, the credit amount will decline to 22%, and it's expected to completely expire in 2024. However, you never know what changes could occur to extend the tax credit.
State Solar Tax Credit
There are also states that provide credits or rebates to residents that install solar panels. Currently, there are 10 states that offer incentives. The additional amount that you receive could range anywhere from $1,000 to $6,000.
If you are eligible for a state credit, you'll subtract its value from the overall cost of installation. Then, you'll also claim the 26% federal solar tax credit on the net cost.
As long as you're a taxpayer who claims the credit during the year of tax liability, then you're eligible for the incentive.
