Solar panel installation is at an all-time high across the country. Are you among the many individuals and businesses thinking about an installation? This federal solar tax credit guide was created to explain how you can take advantage of these tax credits.
When installed in 2023 or later, the federal solar tax credit has increased to 30% of the total cost of the system, with no set maximum amount. This 30% federal solar tax credit will be available until 2032 for individuals and 2033 for businesses. After that time, the percentage is set to decrease. The tax credit is a dollar-for-dollar reduction of the tax that you owe.
If your federal solar tax credit is larger than the tax you owe, you may carry the credit forward. If you are deciding to install solar panels on your home or business, now may be the time to call your tax advisor.
Considerations for Individuals
To qualify for a federal solar tax credit on a system installed on your residence, you must ensure that you own the system and that it’s new or being used for the first time. If you lease the solar panel system, you will not qualify for the federal solar tax credit. Other important requirements include the location of the residence and the date the system was completed.
The residence must be in the United States, owned by the individual claiming the tax credit, and meet certain requirements to be considered as completed in the year the tax credit is claimed. There are also other qualifying situations such as purchasing interests in an off-site community solar project.
In addition, you should take care to only include approved costs in your computation of the system’s total cost as some fees should not be included in the total. Excluded costs typically include things like support beams and shingles but some exceptions can be explored if certain criteria exist.
Considerations for Businesses
There’s more than one option for a federal solar tax credit when installing a solar system on your commercial property. Businesses have the option to use either the Investment Tax Credit (ITC) or the Production Tax Credit (PTC).
- ITC: allows you to take 30% of the total cost of the system in the year the system is completed.
- PTC: allows a tax credit of 2.75 cents per kilowatt hour for electricity generated by the solar panels for the first ten years of the system’s operation.
Generally, both the ITC and PTC cannot be claimed for the same property. Also, the tax credit may be larger than the tax due for some businesses.
For projects placed in service in 2023 or later, the tax credit may be carried forward 22 years or back three years. The rates for both tax credits are set to change in 2033. If you’re installing a large system and expect to have a lot of sunlight, the PTC may be your best option. If you incur high installation costs or qualify for other tax credits, the ITC may be a better fit.
In addition, there are other bonus tax credits that businesses may be able to benefit from as well.
Federal Solar Tax Credit: Get More Details
If you have any questions about federal solar tax credits that weren’t outlined in this guide, we’re here to help. You may call us at (401) 921-2000 or fill out our contact form.