Federal Tax Savings
Understanding your Federal Tax Savings When Choosing Solar Power
Originally established by the Environmental Protection Agency in 2005, the solar tax credit is an incentive that allows homeowners or business owners to deduct up to 30% of the cost of installing solar energy systems in residential and commercial properties in the United States with no cap to the value of the system installed. This act was intended to last until the end of 2007, but due to its vast popularity its expiration date has been extended for nearly a decade. It is mostly because the solar tax credit has proven to be an extremely successful incentive supporting the progression of the country’s economy into the renewable energy era.
How it Works
The United States economy has been after incorporating renewable energy for quite some time. One of these being installing solar power energy into residential homes and commercial buildings. However, this installation can be extremely expensive, so Congress came up with an incentive. If you are a residential or commercial property owner and you choose to have solar power energy installed the Federal Government will give you a thirty percent tax credit of the total cost.
For example, if your install costs $25,000 you will receive a $7,500 credit. Your credit goes towards reducing the total cost of taxes you owe at the end of the year. If the credit is more than the taxes you owe, the remainder rolls over into the next year. A few things to remember when it comes time to file your tax returns:
- Confirm that you qualify for the tax credit. When was your solar power energy installed?
- Gather all the necessary receipts
- Complete IRS Form 5965
- Add the credit to Form 1040
Once that’s all done, you will have effectively filed for solar power credit. It is recommended to consult your tax preparer if you have any questions. Something to keep in mind, by next year the tax credit percentage will begin to decrease:
- 2019 will be the last year to receive the full 30% credit.
- 2020 the credit will drop to 26%
- 2021 the credit will drop to 22%
- 2022 the tax credit will no longer be available to homeowners. Only owners of new commercial solar system installation will benefit from a 10% deduction of the cost of installation.
Moving forward, there are currently no federal tax credits established for residential solar system installations from 2022 and on. So, if anyone is considering getting solar power energy installed, now is the time to do it.
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