There are many great reasons for making the switch to solar energy. However, one large barrier for many people is the cost. Installing solar panels on a residential home can be a significant investment. This leaves a lot of homeowners believing the project is out of reach financially.
The US government is keen to make headway into living a greener, more sustainable future. So, it is offering a tax credit to offset the cost of installing a solar power system.
If you’re thinking of making the leap toward making your home solar powered, here’s how the solar tax credit works and how you can take advantage of it:
What is the Solar Tax Credit?
All homeowners installing solar energy systems before December 31, 2021, can enjoy a 22% federal tax credit. On January 1, 2022, this tax credit expires unless Congress decides to renew it. Of course, this isn’t guaranteed, so if you plan to go solar, 2021 is the year to do it.
How is the Solar Tax Credit Calculated?
When you receive your quote for your solar energy system, all you need to do is a simple calculation to work out the 22%.
For example, with a system costing $10,000, you x the value by 22%, which gives you $2,200. If you deduct this amount from the full cost ($10,000 – $2,200), it means your solar energy system only costs $7,800.
How to Claim the Solar Tax Credit
To get the credit, you will need to subtract the 22% amount from the total tax liability that you receive from the IRS. There are no limits to the amount you can claim (as long as it does not exceed 22% of the total cost of your solar energy system).
It’s important to note that a tax credit is not the same as a tax deduction. Essentially, the credit reduces the amount of income you are eligible to pay taxes on rather than reducing the amount of tax you have to pay. Therefore, a credit of $2,000 remains the same no matter which tax rate you pay. If your solar tax credit exceeds the amount of taxes you need to pay for 2021, the remainder will be carried over into 2022.
Ensure Your System is Eligible
Before you dive in, ensure that the system you choose is eligible for the tax credit. Only qualified systems that meet the guidelines set out by the IRS are covered. Check with your installation expert to be sure that you meet the guidelines before moving forward with the project.
The solar tax credit now means that solar energy is accessible for many more people than before. A 22% tax credit is a huge saving. There has never been a better time to go green. And there’s no guarantee that 2022 will have the same benefits, so make sure you take advantage while you can.