Easton, PA homeowners have more reasons to rejoice this year. The federal solar tax credit (ITC) has just been increased to 30%, which means you can save up to 30% on your residential PV system. If you’ve been waiting for a sign to go solar, then this is it!
This financial incentive has the potential to save thousands of dollars in the very first year of your solar installation. You don’t have to wait a long time to enjoy the benefits of this incentive.
However, our customers in Easton keep sending us questions asking how to make the most of this incentive. So, here’s a quick guide just for you.
The ITC is Not a Deduction
The ITC is not a tax deduction, but a tax credit. The difference is in how they reduce your tax liability.
A tax deduction reduces your taxable income. For instance, if your annual income is $100,000, a tax deduction of $10,000 will reduce your taxable income to $90,000 ($100,000 – $10,000). Now, you have to pay taxes on only $90,000.
On the other hand, a tax credit reduces your tax liability dollar-to-dollar. Suppose your annual income taxes are $15,000. A tax credit of $10,000 on your solar system will reduce your tax liability from $15,000 to $10,000.
A tax credit has a significantly higher impact on your savings.
Have an Income to Fully Leverage It
As explained before, the solar tax credit is not an upfront discount or a deduction. It’s a tax credit that reduces your tax liability dollar to dollar. So, your annual tax liability should ideally be equal to or exceed the size of your ITC tax credit.
Remember, your annual tax liability also includes the taxes on the income you might have paid to the IRS each month. If you’ve paid your income taxes throughout the year, then don’t worry. You can get a rebate for the difference amount.
You Can Carry Over Your ITC Savings
That’s right! If your taxable income for the year is not big enough to enjoy the full benefits of the solar ITC this year, you can always carry over part of the savings to the next year.
It Covers Sales Tax Too
Unlike other states like New Jersey, Pennsylvania does not offer a sales tax waiver on solar installations, which is bad news for Easton residents. However, the good news is that the sales tax you pay can be included as an expense when calculating your solar ITC.
