President Biden officially signed the Inflation Reduction Act into law on Tuesday, August 16, 2022. The Federal Tax Credit for Solar Photovoltaics, often known as the Investment Tax Credit, is one of the numerous goals this act achieves (ITC). This credit can be claimed on federal income taxes to offset a portion of the cost of a solar photovoltaic (PV) system.
What is the Federal Solar Tax Credit?
The Solar Tax Credit, also known as the Residential Clean Energy Credit, allows you to deduct up to 30% of the cost of your solar energy system from your federal taxes. The tax credit is intended to encourage more homes to install solar, encourage investment in the solar industry, and quicken the pace of solar investment and innovation by helping to defray the cost of purchasing residential solar.
Let's examine the key modifications and their implications for Americans who install rooftop solar:
- The ITC's budget was raised, and its deadline was extended. A 30% tax credit will be given to anyone who constructs a PV system between 2022 and 2032. For systems installed in 2033 and 2034, this will drop to 26% and 22%, respectively. If you installed a system in 2022 and haven't yet claimed your tax credit, it has jumped from 22% to 30%.
- The costs of the solar + storage equipment covered by the ITC have increased. Now, energy storage systems with a 3 kilowatt-hour or higher capacity rating are included. This also applies to standalone storage, but here are some benefits of combining it with solar.
The ITC will save homeowners more than $7,500, or 30%, on the cost of installing rooftop solar systems. These tax credits will assist millions more families in cutting their electricity costs by an additional $9,000 on average throughout the system by assisting Americans in installing solar on their roofs.
How Does the Federal Solar Tax Credit Work?
As a homeowner, you can use a federal solar tax credit to offset the cost of installing solar and lower your tax liability each year when you file your federal income tax return. Using Tax Form 5695, the solar tax can be filed just once for the tax year in which your system is installed.
The federal tax due is then reduced by the amount of each credit received, so if you receive $1,000 in credits, your tax liability will be reduced by $1,000. When submitting your taxes, you should include information about your renewable energy credits on a normal Form 1040 once you have determined how many credits you have received.
A tax credit and a tax refund are not the same. You must owe taxes to the government to be eligible for a tax credit, which can partially or fully offset your tax liability. You wouldn't get any money for the tax credit if you don't owe any taxes since you didn't have any to begin with (for instance, if you're retired and have no income). You can get your tax money back in the form of a refund if it has already been taken out of your paycheck; however, you are only receiving money that you have already paid.
Value of the Solar Tax Credit
The Solar Tax Credit will reimburse you for up to 30% of the price of your solar power installation in 2022. You might be surprised to learn that there is no maximum amount on how much you can claim as a tax credit for your solar installation, though! Regardless of how big your solar power installation is, you can still claim up to the full 30% of the credit as long as you owe enough federal taxes to qualify. Any item that directly links to your solar power system or is required for installation is eligible for the
solar tax credit, including solar panels, mounting hardware, inverters, wiring, and battery storage devices. The tax credit also includes labor charges, assembly, installation, inspection fees, sales tax, and other costs associated with having panels put on your roof.
The solar tax credit is worth 30% of the cost of any solar project that completes development between 2022 and 2032. The step-down schedule is as follows after that date:
- 30% - Projects with completion dates of 2022 to 2032
- 26% of the projects are scheduled to be completed by 2033
- 22% of the projects are scheduled to be completed by 2034
- Projects with a completion date of 2035 or later receive 0%
How Big of a Difference Is a 26% Tax Credit Versus a 30% Tax Credit?
The amount you receive depends on how much solar energy you're buying because the Investment Tax Credit is applied to the gross system cost of your solar array. More credit is given to larger systems. The difference between a 26% credit and a 30% credit for a $27,000 solar system is illustrated here with a brief example. Your credit would be $8,100 at the full 30% level as opposed to $7,020 at the 26% level.
That is a $1,080 difference in savings over the previous year. This is a lovely addition of $1,000 to your tax refund and a fantastic start to your solar savings.
How to Qualify for the Solar Credit Tax?
To qualify for the solar credit tax, you must own your property outright (not under a lease or rental agreement) and have a tax burden that is high enough for the Residential Clean Energy Credit to be able to offset your tax payment to be eligible for the solar panel tax credit.
For instance, if you invested $10,000 in solar installation for your primary property in 2022, the 30% Residential Clean Energy Credit would entitle you to a $3,000 tax credit. You had to owe at least $3,000 in federal taxes before the solar tax credit in order to be eligible for that credit. The Residential Clean Energy Credit would lower your overall debt if you had more than $3,000 in debt. The Residential Clean Energy Credit would remove your tax obligation for that year if you owed less than $3,000 in taxes.
Additionally, you can actually "roll over" any unused Residential Clean Energy Credits to the next year if you do owe less than your total Residential Clean Energy Credit savings for the year that your solar system is installed, preventing you from losing the value of those credits.
A general explanation of how homeowners can use their Residential Clean Energy Credit is provided below:
1. Determine eligibility
2. Complete IRS Form 5695
3. Add the Credits to your 1040
How Many Times Can You Claim The Solar Tax Credit?
The solar tax credit is only available once for each solar power installation. You might be allowed to roll over the value of your leftover tax credit for up to five years if you have any unused funds that you cannot spend in a single tax year.
What Does the Federal Solar Tax Credit Cover?
- · Solar equipment
- · Freight shipping costs
- · Solar consulting fees
- · Professional installation costs
- · Electrician fees
- · Engineer fees
- · Tools bought or rented
- · Wiring, screws, bolts, nails, etc.
- · Equipment purchased or rented
- · Permitting fees
- · Permitting service costs
It is a great time to go solar now as the Residential Clean Energy Credit's increase to 30%. You can benefit from further savings and transition to an electric future for all of your home's energy requirements. This historic piece of legislation demonstrates our government's commitment to advancing the clean energy sector and serves as a strong reminder to homeowners that the timing is ripe to put in solar panels.
The solar tax credit has been a big contributor to the expansion of the solar sector, and for many households, the cost of a solar power system with and without that tax credit will differ significantly. There has never been a better moment to install solar panels and make the most of the tax credit that is still in effect.
Solar tax credits have had a significant impact on government policy incentives for sustainable energy in the US over the years. The Residential Clean Energy Credit's long-term stability will allow companies to keep cutting costs and investing in their expansion, and by investing in solar, you'll be doing your part to boost the economy and create employment while also saving money.
We at wellbots.com have a whole range of solar products to help you get started. Make use of this opportunity and get your solar credits, and products at discounted rates from our website, and also contribute towards a greener planet.
Some of our top-selling solar panels, power plants, and other items that would be helpful to you are listed below:
The Zendure 400 Watt Solar Panel is designed to produce maximum power at any time of the day in combination with the SuperBase Pro power plant. It uses advanced technology to soak up as much sunlight as possible and the monocrystalline solar cells maximize the conversion efficiency, performing up to 22.5% better than similarly rated polycrystalline solar panels in low-light conditions.
Lightweight and durable, the Zendure's 200W solar panel weighs only 20.1 lbs. (9.1 kg), and it is foldable and portable. Due to its seamless, one-piece construction, this solar panel offers IP67-rated dust and water resistance, making it perfect for outdoor activities like camping and trekking. Additionally, it has an adjustable kickstand that lets you place the solar panel at the perfect angle for maximum output in any direction or configuration.
The Jackery Portable Solar Panel is the ideal on-the-go power source when you're outside or need a backup power source. Ranked as one of the most efficient, with 23.7% efficiency in the industry, it is foldable and incredibly simple to use. Dual-sided panels improved solar efficiency. The back panel's use of extra-white glass, with a 92% transmittance rating, increases conversion rates. To reflect additional solar energy, a reflective-lined carrying bag has been particularly created. Pair it with the Jackery Explorer Station (sold separately) and build your portable power station and explore the outdoors without any fear of losing power.
The Biolite Solar Panel 100 is a foldable 100 W solar panel that is ready to harness the sun's energy. This device comes with the business's Optimal Sun System, an analog sundial that helps you quickly place the solar panel for maximum power generation. To extend the lifespan of the solar panel, high-efficiency multi-crystalline cells, and an ETFE lamination are used in its construction. The device can withstand light rain thanks to its IPX4 classification.
The Solar Panel 100 has an integrated foldable kickstand and storage pouch for your wires and other small gadgets. You can connect up to four panels to create 400 W of power. For direct device charging, the solar panel offers 45 W USB-C PD and USB-A ports.
The Mango Power Solar Move is compatible with the Mango Power E Portable Power. You can recharge your generator anywhere with the Mango Power Solar Move 200W (18V), which is foldable and portable. Conquer nature while maintaining your comfort level at home. With this solar panel, use solar energy that is a source of renewable to power your home appliances both on and off the grid. Convenient to carry, waterproof and durable, and easy to connect makes this 18V solar panel a worthy device worth investing in.
This add-on battery connects with a DELTA Pro to double the total capacity to 7200Wh. Connect two of them to DELTA Pro for a staggering 10.8kWh to use off-grid. Recharging from solar panels, AC outlets, EV charging stations, or our Smart Generator is easy. Plug the Extra Battery into DELTA Pro and they will recharge and discharge in tandem. The Extra Battery can be integrated into your home’s wiring when connected to DELTA Pro. These battery units become part of your home’s peak shaving and emergency power solutions. This Extra Battery can recharge directly from EcoFlow’s Smart Generator outdoors, giving you another option for emergencies. Get all the same info about battery percent, remaining recharge time, hours left, and more on the built-in screen. You can check the battery’s status anywhere from the EcoFlow app.
The new generation of portable power stations is here! With unbeatable charging speed, the Mango Power E meets all your energy needs to power all your devices. With it, the fear of power outages will be only a distant memory. The Mango Power E is stylish, easy to carry, and will accompany you on all your adventures, whether you're at home or out in the wild.
Portable solar power stations, solar charging wires, and other accessories from various reputed brands are also available on our website.
Solar panels are an excellent method to balance your energy expenditures, lessen your home's environmental effects, and provide you energy independence and control over the future of your family. Install solar energy systems right away to qualify for the Residential Clean Energy Credit. The Credit Tax is set to touch upon myriad aspects of Americans’ lives, shaping everything from the cars you drive to the stovetops in your kitchens.
You should always consult your tax professional to determine your eligibility for tax credits given your individual situation. Wellbots does not guarantee any tax credit based on our products, and any information we provide is for educational purposes only and should not be considered legal advice. It does not constitute professional tax advice or financial guidance. It should not be used as the only source of information when making purchasing decisions, investment decisions, tax decisions, or execution. Consult a tax professional to evaluate your eligibility.