Almost half of the American homeowners are considering solar panels for their property. Most cite energy savings as their reason for switching. However, this incentive might not be enough for you.

As such, solar tax credits could push you to take the plunge. Do you want to know more? Read on and find out three facts:

1. ITC Reduction Schedule for 2020-2024

In 2020, the original 30% Federal Tax Credit (ITC) went down to 26%. Initially, it would decrease by the end of the year. The recent health crisis made Congress extend the rate to the end of 2022.

The ITC rate will become 22% by 2023. It levels out to 10% the year after, but only for commercial establishments. The sooner you buy a solar panel system, the higher the ITC rate you'll enjoy.

Also, the growing popularity of solar power means more people are filling up installation schedules for 2022. Some contractors are already full until the middle of the year.

Never hesitate since there are no additional government extensions for a tax credit. Consider looking for Blue Raven locations to get the best deals today.

2. ITC Qualifications and Applications

The federal tax credit allows you to deduct 26% of your solar energy system costs from your taxes. It's a dollar-for-dollar credit toward your income taxes.

To qualify, you must have a tax liability as you file. If you receive money back from your tax return, the credit will not apply in that year. Instead, it will roll over to the next.

Calculate the amount deducted by multiplying 26% with your tax basis. It's the amount you invested in solar energy. It includes the following:
  • Solar panels
  • Installation costs
  • Racking
  • Storage devices
  • Sales and use tax
The average cost of a solar panel system is $16,000 to $21,000. With the 26% tax incentive, you will save over $4,000 as tax deductions.

3. No Installation Required for 26% ITC

Your home should meet the IRS's requirements to be eligible for the ITC. You have two options:
  • Physical Work Test
  • Five Percent Safe Harbor Test
The former shows you started working on a solar investment project. It must be significant enough to be eligible. As for the latter, you must pay 5% or more of the solar system's cost as its construction begins.

You need only meet one requirement to receive the 26% tax credit next year. It doesn't matter even when the project concludes in the following year.

Other Solar Power Incentives

Aside from the ITC, rebates, programs, and state tax incentives exist. It depends on your location. In some cases, these will impact your federal tax credit.

State tax credits never decrease your federal tax credit amount. However, your taxable income on federal returns is higher. After all, you have fewer deductions on state income tax.

Learn More About Solar Tax Credits Now

We hope our guide helped you discover more solar tax credits facts. Use this knowledge to determine whether the benefits of solar are worth your time.

However, hiring reputable solar companies is a must. Read some online reviews to make the most out of your solar benefits.

Did this article help? Consider exploring our other posts for more valuable knowledge today.