Inquiries about the federal income tax credit incentive are among the most common questions we receive from our customers in Bethlehem, PA. That’s understandable since it’s the biggest effective discount you can realize on your upfront investment in home solar.
If you recently started researching home solar, then you should know that the federal income tax credit allows solar customers to reduce their annual tax liability by up to 26% of the value of their solar installation.
Although it’s not an upfront discount but a tax credit, it is a dollar-to-dollar reduction in your income tax liability.
However, this lovely incentive is a limited-time deal, and the clock is ticking on it even as we speak. Here’s why this could be the last chance for Bethlehem residents to take advantage of this solar incentive.
Time’s Running Out
The federal income tax credit was originally 30%, which was slashed to 26% starting in 2020. Subsequently, it was scheduled to drop to 22% in 2021. However, new legislation was passed to extend the 26% tax credit for the next two years, until the end of 2022. So, the tax credit will drop to 22% next year. This 4-percentage point difference can translate into hundreds to thousands of dollars in lost savings for you.
How to Claim Federal Solar Tax Credit?
To qualify for the federal income tax credit on your solar installation, you should be the owner of the system. Solar leases and PPA arrangements do not qualify you for the tax credit.
At the time of filing your income tax returns, you must complete Form 5695, and calculate the tax credit amount you are eligible for in Part 1 of the form. Then you need to enter that amount in your Form 1040.
For ease of filing, you can get in touch with us, or contact your tax advisor.
Other Things to Consider
Some solar customers worry that they may not have an additional tax bill at the end of the year, and they will become ineligible to avail of the federal tax credit.
The tax credit is applicable not only on the additional tax bill at the end of the year but also on the income taxes you’ve already paid throughout the year. Your weekly or bi-weekly paychecks have income tax deductions. At the year-end, you can claim a refund on those taxes amounting to 26% of the total value of your solar installation.
Grab this opportunity before it goes away forever.
