24 Jun When Does the Federal Solar Tax Credit Expire?
If you own a home or business, switching to solar power can help save you money in many ways. One way to save on solar is with the federal solar tax credit. However, the sooner you invest in solar, the better. The amount you can save with a federal tax credit decreases each year, and will eventually expire.
At Energy Saving Pros, we provide solar power solutions that help California home and business owners qualify for big savings. We put together this guide on the federal solar tax credit in 2022 to help you understand how long you have to take advantage of this limited-time program.
2022 Guide to the Federal Solar Tax Credit
What is the federal solar tax credit, and how does it work?
The federal investment tax credit for solar energy is a dollar-for-dollar reduction of the taxes you owe at the end of the year. As long as you had solar equipment installed during that tax year, you can claim the credit by completing IRS form 5695 when you file your tax return. However, if you didn’t claim the tax credit for a previous tax year, you can file an amended return. Keep in mind that a tax credit differs from a tax deduction—it only lowers the amount of taxes you owe, not the amount of your taxable income.
The federal solar tax credit applies to a percentage of the cost of your solar equipment installation. The percentage for 2022 is 26%, but that rate decreases every year until the tax credit expires. The tax credit percentage was, in fact, meant to go down to 22% in 2021, but Congress passed an extension in December of 2020 to make it last through 2022. That means that filing an amended return for 2020 or 2021 could still earn you the 26% tax credit.
Who is eligible for a solar tax credit?
You can claim the federal solar tax credit as long as you have tax liability for the year that the eligible solar equipment was installed. Eligible solar equipment includes solar panels (including those used to power a solar attic fan) and solar backup batteries. However, you can only claim the credit if you own the equipment. If you lease your solar equipment, then only your lease provider can claim the tax credit.
When does the federal solar tax credit expire?
Although the federal solar tax credit for equipment installed in 2022 is at 26%, the percentage falls to 22% in 2023, and expires completely in 2024 for homeowners. Business owners actually have a little more time, because there is still a 10% tax credit in 2024 for commercial solar projects. The federal tax credit for commercial solar expires in 2025.
There is a possibility that Congress could renew the solar tax credit after 2024, because it has been extended several times since its introduction in 2006. However, there is no guarantee that it will be renewed, or what percentage that credit would be. If you’re considering switching to solar power, it’s better to act fast rather than risk losing significant savings. The sooner you install your solar equipment, the more you will save on your electric bill and your taxes, so act now if you’re considering a switch.
What expenses are included in the tax credit?
With the federal solar tax credit, you can save on the total cost of all expenses related to solar system installation. These expenses include the cost of:
- Solar panels
- Backup batteries
- Mounting equipment
- Labor
- Permits
- Inspection
- Developer fees
- Certain sales taxes
Solar Solutions in Sacramento
Are you interested in saving on solar? At Energy Saving Pros in Loomis, California, we can help you find the perfect solar solution for your home or business. We have been providing renewable energy solutions to the Greater Sacramento area since 2008. If you have any questions or would like to request a quote, give us a call at 916-259-2501 today.
Images used under creative commons license – commercial use (6/23/2022). Photo by Bill Mead on Unsplash