Solar tax credits, officially known as “The Residential Renewable Energy Tax Credit” is a federal tax credit for the use of particular types of energy such as solar panels, geothermal heat pumps, solar water heat, wind energy, and more. To be eligible for the credit homes must meet the local fire and electrical code, have been installed between 2006 and 2021, and it must power your personally owned residence. To make sure you qualify for applicable credits, using a professional solar energy installation provider is your best plan.
How it Works
The tax credit subtracts the total allowable amount from your total tax liability. The credit applies based upon when the system is fully installed and working. Work with your installation professional to make certain you have the timing optimized to get the best credit possible. It’s important to move quickly to install your system to get the best tax credit. The current rate is 26% of the qualified installation costs, but this rate will drop to 22% on January 1, 2021. The bottom line is that 2020 is the year to have your solar system installed and operational.
Carrying Over Your Credit
While the tax credit is only applicable once, there is a feature that is very helpful to those whose tax liability does not exceed the total of the credit. The credit will apply to your full tax liability for a year and allow you to carry over the remainder of your allowable credit to the next filing year. This is a huge advantage for people that get a substantial credit based upon the system they install. If you receive a $5,000 credit, but you only owe $3,000 in taxes upon filing, you’ll be able to credit the remaining $2,000 to the next year’s tax liability, and have to pay zero dollars for the current year.
Many states also offer tax incentives for the use of solar and other renewable energy systems. Qualified solar installation professionals will know about all of these state and federal solar tax credits, along with their expiration dates. The federal credits were set to expire in 2016, but extended through the year 2021. This federal credit will expire though, so moving quickly to get the most money possible is important. When you include the ongoing monthly savings on energy costs, the system will quickly pay for itself.
Contact a Solar Installation Professional
Because there are particular requirements that must be met, it is best to have a professional handle your solar installation. Solar and renewable energy installation professionals understand the qualified expenditures associated with the solar tax credits and will work to get you the best possible financial incentive on your system. This is the year to allow Solar Optimum to handle your solar system installation! If you are interested in discussing the best options for a solar power installation for your home, contact us today. Now is the time to act to take advantage of these credits before they expire.