If you installed solar panels for the altruistic reason of benefiting the environment, that good will is about to pay off! Tax season is officially here, and for newly solar-powered homes, a federal tax credit could be the ticket for big savings. Not only do solar panels save money on your monthly energy bill, but you also qualify for the solar Investment Tax Credit (ITC). If you haven’t switched to solar panels yet, you still have time to qualify for the tax credit. Here’s how it works:
Solar System Purchase
The taxpayer who owns the residence where the solar system is being installed must purchase the solar system outright. If the system is financed through the solar company, the company claims the tax credit. While it may seem easier to lease the system and spread out the cost, the tax credit can put money back in your pocket.
Deductible Amount and Timeline
The tax credit provides a dollar-for-dollar reduction on the income taxes of the taxpayer (or the business that is leasing the system to a customer). The credit allows a deduction of 30% of the cost of installing the solar system from federal taxes if placed in service by December, 2019. If the system is installed in 2020, the deductible amount is reduced to 26%. For installations in 2021, the deductible amount is further reduced to 22%.
The costs that are considered deductible include the solar power hardware plus the labor for on-site preparations, parts assembly, installation, piping and wiring of the system to the home. If the costs exceed the maximum amount allowed for the deduction during the year they are filed, the remainder can be rolled over and deducted on the next year’s tax filings.
How to Claim Your Credit
Notify your accountant about your solar power addition when sitting down to discuss your yearly federal tax return. Be sure to retain and provide all receipts showing the cost of deductible charges from the installation. If you file your own taxes, you’ll need to complete the IRS Form 5965 “Residential Energy Credits” to show qualification for the credit and attach it to your return.
For more information about installing a solar power system for your home to take advantage of the solar Investment Tax Credit, contact TerraSol Energies at 888-873-9995. We install solar systems in Pennsylvania, New Jersey and Delaware.