The federal tax credit has been restored to its original value of 30%, and it will remain so until 2032, before dropping to 26% in 2023 and to 22% in 2024 until its discontinuation at the end of that year.
Residential homeowners can save up to 30% on their PV system and installation costs by choosing to go solar today. However, there are some common pitfalls to avoid when claiming this government incentive. So, we’ve compiled a list of tips to help you avoid them.
- You Should Own the PV System
The federal solar tax credit can be availed by the owners of the solar system only. You can purchase the PV system in cash or through a solar loan. As long as you are the owner of the PV system, you can avail this tax rebate.
If you’ve not already deduced this, you cannot avail of this financial incentive with solar leases and solar power purchase agreements (PPAs), where you are not the owner of the system.
- You Must Have Taxable Income
As the name indicates, the federal solar tax credit is an income tax credit. It’s a rebate on your annual tax liability. You can deduct 30% of your solar installation expenses from your annual tax liabilities. So, if you don’t have a taxable income, you cannot take advantage of this incentive.
- The Tax Credit is Unlimited in Theory Only
The federal solar tax credit helps you reduce the total investment into your PV system by up to 30%, no matter the size and value of your system. Whether your system costs $20,000 or $200,000, you can save up to 30% on the expense, thanks to the federal tax credit.
However, since it’s a tax rebate and not an upfront discount, it’s limited by how much taxes you owe to the government annually. If your rebate amount exceeds your annual taxes, then you can avail a rebate equal to the amount of your annual tax liability only.
- You Can Carryover Your Rebate
That’s right! You don’t necessarily have to claim the entire federal tax credit amount the same year you installed the system. If your annual tax liability falls short of the total rebate for which you are eligible, you can carryover the leftover value to the next year.
Follow these tips to get maximum savings on your solar system purchase in 2022. There was never a better time to go solar than today!