With electricity and home energy costs rising across the country, the Inflation Cuts Act makes installing solar panels and storage batteries a more attractive investment for many. owners compared to a few years ago.
The new Residential Clean Energy Credit, you can deduct 30% of the cost of installing solar heating, generating electricity and other solar home products from your federal taxes. This credit is a reboot of the older, less valuable federal tax credit and will be available to taxpayers for more than a decade. This means that homeowners considering solar installation have plenty of time to consider their options.
Here’s what you need to know.
What is the new Solar Tax Credit?
If you install solar on your property anytime this year through the end of 2032, you’re eligible for a non-refundable credit on your federal income tax of 30 % of Eligible costs. There is no dollar limit for these expenses; You are eligible for this 30% tax rebate whether you spend $20,000 or more than $100,000 on costs related to your home solar system.
How will the new Solar Tax Credit save you money?
The credit reduces federal taxes. So, if you spend $ 24,000 on a system, you can subtract 30 percent of that, or $7,200, from your federal taxes. (You must take credit for the year the installation was completed.) If, for example, you owe $7,000 in tax before the credit, a $7,200 credit would reduce what you owe to zero. However, it is not possible to get a tax refund on the remaining $200, but you can carry over that remainder to a future fiscal year.
You will also save on lower electricity bills. How much you will save depends on a number of factors, including how much electricity your home uses, the size of your solar system and how much sunlight it receives, and local electricity rates. Real estate experts say that a purchased solar system, as opposed to a rented one, can increase the value of your home when you sell it.
How long will the new Solar Tax Credit last?
The 30% credit lasts until December 31, 2032. It drops to 26% in 2033, then to 22% in 2034, and disappears in 2035 unless Congress continues it. (The new law replaces an earlier law, due to expire in 2024, which would have provided a 26% credit for solar installations this year and 22% in 2023.)
Do you qualify for the new Solar Tax Credit?
The new Solar Tax Credit is available to all taxpayers for their primary or secondary residence located in the United States and can be used by taxpayers at any income level. You can use it if you detail your taxes or take the standard deduction.
Note, however, that the solar tax credit is only available if you purchase a solar system; if you rent one, you cannot use the credit. The same is true if you are a member of a power purchasing co-op. However, if you are an interested tenant in a co-op, you can apply for credit for your share of the purchase. You can also apply for credit for your share of the purchase of a community-owned solar system.
Can you use this credit if you also use other federal energy tax credits?
Yes. The new law also provides for a Non-Commercial Enhanced Energy Credit, which covers other qualified efficiency upgrades such as Energy Star certified exterior doors, Energy Star certified exterior doors, airtight insulation, improved electrical circuit panels, and heat pumps. . You can apply for both credits on your federal declaration, in the same year or in different years, depending on when the installations were completed.