The U.S. federal government offers financial incentives for consumers who upgrade their homes with energy-efficient appliances. Switching from an outdated furnace to a high-efficiency “modulating” furnace, for instance, can yield a 10% tax credit. You can receive a similar tax credit for purchasing solar panels as well. Known as the solar Investment Tax Credit (ITC), it’s intended to encourage consumers in the United States to invest in solar panels.
The Solar ITC Explained
The solar ITC is a tax credit for residential solar panel installations. Like all tax credits, it works by reducing your tax liabilities. The federal government won’t send you a check or cash. Assuming you are eligible for the solar ITC, you can claim it on your taxes. The solar ITC will then reduce the amount of money you are required to pay the Internal Revenue Service (IRS).
How much will the solar ITC save you on your taxes exactly? In the past, it was set for 26%. Congress recently extended the solar ITC, however, while increasing the amount to 30% for solar panels installed between 2022 and 2032.
The solar ITC covers the following expenses:
- Solar panels (e.g. cells)
- Mounting equipment
- Installation labor
There are certain requirements you’ll have to meet to be eligible for the solar ITC. It’s limited to residential solar panel installations, for instance. There are other tax credits available for commercial solar panel installations, but the solar ITC is exclusive to residential installations.
You must also own the solar panel installation for which you want to claim the solar ITC. Some homeowners lease their installation, whereas others purchase power generated by a third-party-owned installation. Ownership is an eligibility requirement for the solar ITC. Only homeowners who own their solar panel installation — or those who purchase an interest in a community installation — can claim the solar ITC.
Exploring the Cost-Savings Benefits of the Solar ITC
The solar ITC will inevitably save you money on the cost of a solar panel installation. As long as you meet the requirements, you can claim it on your taxes. It will then reduce the amount of money that you are required to pay Uncle Sam.
The amount of money by which the solar ITC will reduce your tax liabilities is dependent upon the cost of your solar panel installation. The solar ITC is a flat 30% tax credit. If you spend $10,000 on your solar panel installation, it will save you $3,000 on your taxes.