WHAT IS A FEDERAL TAX CREDIT?

Some people are confused about what a Federal Tax Credit really is and is not. Hopefully, the information below will be helpful in preventing any further confusion.

• You can only make use of a Federal Tax Credit for a specific tax year if you have a Federal Tax Liability for the same period.
• If you do not have federal tax liability for a specific tax year, you will not be able to take advantage and claim a federal tax credit later, when you prepare your income taxes for the same period. This means that any federal tax credit that you may receive, will be a total waste.

WHAT IS A SOLAR TAX CREDIT?

As you probably know, there are different types of financial incentives available to homeowners who are prepared to invest in renewable energy in the U.S., including solar and wind energy. These incentives play a major role in strengthening the entire green energy industry and contribute substantially to the clean energy revolution.

The most important financial incentive in the solar industry at present is provided by the federal government in the form of the Federal Investment Tax Credit (ITC), also known as the Federal Tax Credit For Solar, or the Solar Tax Credit.

There will be a solar tax credit of 30% in 2024 throughout at least 2032. Per the Inflation Reduction Act of 2022, the credit will remain accessible and increase from 22% to 30%. The tax credit is currently set to expire in 2035.

The federal solar tax credit helps with most installation costs for a solar PV system. The 30% rate will remain until 2032. It will decrease to 26% in 2033 and 22% in 2034. Unless renewed by the federal government, the credit will end by 2035.

Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics is available Energy.gov online.

• There is no dollar cap limit for the solar tax credit.
• The solar tax credit is applicable to solar PV systems, solar batteries, electrical service panel upgrades, if required, and all installation-related labor and material costs, including engineering system design, shading analysis, damaged roof replacement under the solar PV system, inspections, and permits.
• Homeowners can claim the solar tax credit for a specific tax year period as long as they have a federal income tax liability for the same period.
• If homeowners don’t have sufficient federal income tax liability for a specific tax year period, they can roll the solar tax credit into the next tax year period. The solar tax credit rollover period is limited to four years.
• Homeowners can claim the solar tax credit for the year when the solar PV system was installed, as long as it is operational by December 31 of that year.

Additional information about Federal Solar Tax Credits For Businesses is available online:

• Energy.gov
• Energy Sage

WHEN CAN YOU CLAIM THE FEDERAL SOLAR INVESTMENT TAX CREDIT?

According to the Federal Solar Investment Tax Credit (ITC) guidelines:

• You can claim the solar tax credit only when you purchase the solar PV system by using personal funds or any type of financing, including PACE Financing or Personal Loan Financing.
• You can’t claim the solar tax credit when you obtain the use of the solar PV system through a Solar Lease or a Power Purchase Agreement (PPA).

In this case the solar leasing or solar financing company will be entitled to the solar tax credit and all rebates.

WHAT COSTS CAN YOU CLAIM UNDER THE FEDERAL SOLAR INVESTMENT TAX CREDIT?

The Total Cost subject to the Federal Solar ITC includes the following costs:

• The solar PV system engineering design and permits.
• Preliminary site inspection and shading analysis.
• Solar PV panels and accessories.
• Racking, fittings and electrical cables.
• The inverter/s or micro-inverters.
• The electrical panel upgrade and relocation, if required, including cables, trenching, and all other solar-related material and labor costs.
• Removal and replacement of a part of the damaged roof under the solar PV system, if required.
• All other costs associated with the installation of the solar PV system.
• Solar batteries and all related system integration, labor, and installation costs.

The solar tax credit applies to both residential and commercial solar PV systems and solar batteries, and there is no cap on its value.

LEARN MORE ABOUT THE SOLAR INVESTMENT TAX CREDIT ONLINE

The information below is provided in case you would like to enhance your knowledge about The Solar Investment Tax Credit and other types of tax credits:

• EnergySage – Solar Tax Credit - Everything You Need To Know About The Federal ITC For 2024 .
• EnergySage – How Do I Claim Solar On My Taxes?
• Solar Power Authority – Federal Solar Tax Credit (ITC).
• The Motley Fool - 9 Tax Credits You Need To Know.

RESIDENTIAL HOME ENERGY TAX CREDITS

As a prudent homeowner, you probably would like to know how to maximize Residential Home Energy Tax Credits that may available to you during a specific tax period.

According to Internal Revenue Service (IRS), if you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit up to $3,200. You can claim the credit for improvements made through 2032.

You may learn more at IRS - Residential Clean Energy Credit online.

DISCLAIMER

Cool Remodeling, Inc. is not an accounting firm and doesn’t provide accounting and tax advice. You must consult with your personal accountant or CPA regarding any accounting and tax issue related to you, including your entitlement to the federal tax credit.