How Solar Can Save You Money On Your Taxes in 2021

Everyone knows the pitch: installing solar saves you money on your power bills. It’s a great financial choice especially if you have a high electric bill. 

One ‘drawback’ that people often bring up is that sometimes a solar installation might take time to return the initial investment. That can sometimes be true: but there is a huge return on investment that you get in the first year of investment: the Federal Solar Tax Credit. 

The Federal Solar Tax Credit - was established by The Energy Policy Act of 2005, and was applied to solar panel installations, solar water heating systems and fuel cells.

Homeowners in San Diego can still take advantage of the Federal Solar Tax Credit which is an income tax credit for 26% of the cost of your solar project (provided that you purchase directly without a lease). 

As an example, if your system costs $20,000, you would receive an income Tax Credit of $5,200. Quite a nifty way to lower your tax burden. Keep in mind that the Federal Solar Tax Credit has been extended through 2022. If you want to go solar, now is the time if you want the best ROI. 

Solar ITC Phase Out

In December 2020, Congress passed an extension of the ITC. This provides a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023. The tax credit is due to expire in 2024 unless Congress renews it again. 

How Much Can I Save With The Federal Solar Tax Credit?

There isn’t a cap on how much you can save with the Federal Solar Tax Credit. It’s merely 26% of the total cost of your solar installation which is subtracted from what you owe the federal government on your federal taxes. 

For example, if the total cost of your solar installation is $40,000, then the credit would be 26% of that: $10,400. Going solar in 2021 will reward you with a 26% tax credit which you can use to subtract from what you owe the federal government on your taxes at the end of the year.
You can also roll the credit over to next year if you don’t owe the federal government enough on your taxes to recoup the whole tax credit in 2021. So if you received that tax credit of $10,400 and only owed $5,400 in taxes you could rollover the additional $5,000 for 2022. 

Keep in mind that the Federal Solar Tax Credit is a tax credit and not a rebate. You’ll need to have a tax liability (income tax) in order to use the credit.

 
Do I Qualify for the Solar Tax Credit?

There are requirements to qualify for the 26% Tax credit. Those include:

1. The solar system must be installed and activated, or construction must start, before December 31, 2022.
   
   
2. You must own your home or business that the solar is being installed on. Renters are not eligible.
   
   
3. You must own the solar panels that are installed. Leased solar panels do not qualify for the tax credit.
   
   
4. You must owe enough taxes to the federal government to use the credit against what you owe. It is a credit, not a rebate, so if you don’t owe, you can’t recoup the credit.

Do I have to Purchase My System to Qualify?

Many homeowners think they have to purchase their solar system outright in order to qualify for the Tax Credit. This is not necessarily true: homeowners who go solar with a loan can also qualify, even if they put $0 down. 

You’re eligible for the Federal Solar Tax Credit if you pay via cash, loan, or line of credit. Remember, if you’ve gotten a solar system with a solar lease or Power Purchase Agreement, you are not eligible because the leasing company owns the system.

How Do I Claim My Solar Tax Credit?

Once you’ve gone solar, claiming the solar tax credit is easy. When preparing your taxes you have to complete IRS Form 5695, “Residential Energy Credits” which is available in PDF form on the IRS’s website here. You then include the completed result of that form on the IRS Form 1040.  

If you foresee a huge tax bill this year and you’re a homeowner: you should consider going solar this year! There isn’t a large amount of time to take advantage of the full 26% Federal Solar Tax Credit. It’s a unique opportunity to get the government to essentially pay YOU for going solar. 

In a nutshell, 2021 is a great year to go solar. Save money on your taxes while reducing (or eliminating) your electric bill for years to come. It seems like a no brainer right? 

Call us today to get your solar system installed in 2021, and take advantage of the Federal Solar Tax Credit while you can.