Tax season is here and the question on everybody’s mind is: How can I save as much as possible this year?! As Tax Day approaches, it’s crucial to be aware of the credits and incentive options available to help you save on solar.
In this article, we will explore different tax credits and incentives for solar energy and how they can help you save money on your taxes this year.
Do Solar Panels Actually Qualify for Tax Credits?
Yes! There are a number of federal and state tax credit options to help you save on your solar energy usage and deduct costs for installation costs.
It’s important to keep in mind, these credit options differ depending on your situation. Owners of solar systems benefit from reduced installation costs for solar energy while subscribers of community solar indirectly benefit in the form of guaranteed savings.
The Federal Solar Tax Credit
The Federal Investment Tax Credit (or Residential Clean Energy Tax Credit) is a tax incentive option for solar energy owners. It is a tax credit of 30% that allows owners of solar energy systems to get a reduction on installation costs of their solar system when they file their federal taxes.
The Federal ITC includes benefits for various members of the solar energy ecosystem. For owners of rooftop solar or community solar developers, it helps alleviate the cost of setting up their solar system. For subscribers of community solar (who rely on energy from a solar farm but don’t own it), it translates into additional savings over the lifetime of their subscription.
For businesses using solar energy: If you claim the Federal ITC on your solar equipment, you can reduce your system’s depreciable basis by one half the value of the 30% credit . This is possible through the Modified Accelerated Cost Recovery System (MACRS) deduction method. It allows businesses to recoup their spending on tangible property through annual deductions over a specific time period (for solar equipment, it is a period of 5 years).
State and Local Tax Incentive Options
In addition to the Federal ITC, there are a number of tax incentives available at the state level. Here are some examples from markets we serve:
New York – The Megawatt Block Program
This program offers rebates to help make solar energy more accessible to low and medium income households that otherwise wouldn’t be able to afford it. It also offers solar owners incentives and credits for their solar systems, however the exact rate depends on their region and the size of their solar system. For example, a solar system installed in the Con Edison or Upstate areas would receive a rebate of $0.80 per watt of solar energy generated. It’s important to note that the program is no longer available in Long Island.
New York – The Affordable Solar Program
This program encompasses various tax credits and incentives to help make solar more affordable to all New Yorkers. It features the Solar Energy System Equipment Tax Credit which is a state credit of 25% (up to $5000) off your solar energy costs. It is available to owners of solar systems or anybody who leases their solar energy from a separate system, like community solar subscribers.
New Jersey
New Jersey offers a 100% sales tax exemption for any solar system purchase. This means that owners of solar systems are completely exempt from paying taxes on any material used to set up their solar system. This exemption also helps community solar subscribers incur additional savings.
Pennsylvania
Pennsylvania provides Solar Renewable Energy Credits (SRECs) to any household or business with its own solar system. Each credit is equal to 1000 kilowatt-hours (or 1 megawatt hour) of clean electricity that’s generated. While they’re not exactly a tax credit, selling SRECs to utilities helps solar panel owners make some extra money and recoup a portion of their system installation costs. SRECs are also available in Maryland, Washington DC, Virginia, Delaware, Colorado, Illinois, and Massachusetts.
Final Note
To claim solar tax credits, you’ll need your forms 1040 and 5695 from the IRS. Remember that it is crucial to work with a qualified tax professional who can help you prepare the best return for your situation.
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Written By Alfreda Adote | Edited By Lauren McGregor