What Are Solar Tax Rebates?December 10, 2022
Local, state and federal government bodies often seek ways to issue tax rebates to inspire economic growth through specific purchases. In other words, the more money the government can put back into your hands, the more you can spend, doing something good for your home, quality of life and the economy.
As efforts continue to encourage the use of more efficient and earth-friendly energy alternatives, there are many tax rebate opportunities for homeowners investing in solar panels.
What Are Tax Rebates?
While certain rules, regulations and sometimes limitations may apply, government-extended tax rebates can make owning a home more affordable and less stressful.
As you explore this exciting way to defray your homeowner-related expenses, you will find various tax rebates, credits and deductions to help you save money on taxes. This strategy offers you an ongoing cycle that allows you to keep investing in your home for improvements that add value in case you eventually decide to sell.
Some standard activities and areas where you might be eligible for tax deductions and rebates include:
- Mortgage interest
- Home equity loan interest
- Mortgage discount points to lower interest
- Property taxes
- Mortgage insurance costs
- Home office expenses when operating a home business
- Home equity loans for repairs, improvements and accessibility
- Capital gains after selling your home
- Tax rebates for energy savings efforts, such as buying a hybrid car, investing in Energy Star-certified appliances and installing solar panels
You will need to do some research to comply with tax rebate eligibility requirements since they vary widely, from one tax credit or rebate to the next. However, you typically won’t need to wait until the following year’s tax return to receive your credit or payment, since your tax rebate payment is not necessarily directly related to any credits and deductions you claim for your tax return.
What Is a Solar Tax Rebate?
If you are ready to buy solar panels, you might have heard about the solar tax rebate and wonder what it is and how it applies to you.
The official name of the solar tax credit is the Residential Clean Energy Credit. This hefty, homeowner-friendly tax credit allows you to deduct up to 30% of the cost of your solar energy system installation from your federal taxes. As you can see, this tax rebate is intended to inspire homeowners to install solar panels to spur and stimulate investment in the solar industry for greater adoption and success.
Originally known as the Investment Tax Credit (ITC), created as the Energy Policy Act of 2005, the Residential Clean Energy Credit offers you as a homeowner the potential to greatly reduce and sometimes eliminate taxes you would otherwise owe and have to pay to the federal government.
Federal Solar Tax Credit Amounts by Year
Taking a look at the trajectory of tax benefits for homeowners buying and installing a solar photovoltaic (PV) system might help you determine whether it is a good long-term investment for your home’s value, energy usage and tax bill.
Here is a listing of your tax benefits based on when you installed or plan to install your solar panels through 2034:
- Solar equipment installed and initiated service for the tax years 2017-2019 = 30%
- Solar equipment installed and initiated service for the tax years 2020-2021 = 26%
- Solar equipment installed and initiated service for the tax years 2022-2032 = 30%
- Solar equipment installed and initiated service for the tax year 2033 = 26%
- Equipment installed and initiated service for the tax year 2034 = 22%
The tax credit is scheduled to end in 2034 and will decrease significantly in 2033 and 2034, so it’s important to make this important investment to capitalize on the tax rate as soon as possible.
State tax credits for solar installation do not reduce your federal tax credits. The ultimate result of claiming a state tax rebate is being taxed at the federal tax status.
Solar Tax Credit Eligibility
To ensure you get the most out of your solar tax rebate, consider the following eligibility requirements:
- The system is new or being used for the first time from January 1, 2006, through December 31, 2023.
- You must fully own the system versus leasing it.
- You must have the system installed at your primary or secondary U.S. residence.
- You may have the system installed at an off-site community solar project in the U.S.
Conclusion: Additional Benefits of Going Solar
Besides the impressive tax benefits of investing in a solar PV system from a trusted local provider, there are more benefits you can enjoy, such as reducing your carbon footprint and pollution and moving away from the use of coal and other fossil fuels.