How Does the Federal Solar Tax Credit Work?
The Solar Investment Tax Credit (ITC) is set to taper off over the next two years, with only a 10% credit available for commercial entities by 2022. In the 2020 tax year, however, individuals and businesses can still claim a 26% tax credit on all solar project costs. Next year, the tax credit will be reduced to 22%. So, we recommend taking advantage of the better solar tax credit in 2020 while you still can.
How Does a Tax Credit Work?
Dollar for dollar, a tax credit reduces the amount of income taxes you ultimately owe.
For example, if you invest $10,000 into a solar energy system for your home or business this year, you will be able to take 26% of the total costs, earning $2,600 in tax credits. If at the end of the year, you owed the IRS $5,000 for 2020’s income taxes, you would subtract the $2,600 tax credit and only need to pay the remaining $2,400.
Remember that in order to actually benefit from a tax credit, you need to owe income taxes.
Solar Expenses You Can Claim
- Consulting fees
- Shipping costs
- Solar equipment costs
- Installation equipment costs or rent
- Contractor, installer, electrician, and engineer fees
- Rented or purchased tools
- Hardware and wiring
- Permitting fees and service costs
Be sure to save all your receipts, so you’re prepared to file IRS Form 5695 come tax time.
As Much As We Love Pushing Pens, We’re Solar Specialists – Not Tax Accountants
Whether you plan to take advantage of the federal tax credit or local solar incentives by installing a system in your home or business, we recommend talking with your local tax accountant to find out exactly which incentives you qualify for and what kind of break you can expect in your tax filing for the year.
To learn more about solar energy in your home, solar storage systems, and solar air conditioning, we welcome you to contact STI Solar, Roofing & Air Conditioning. Our experts on Kauai and Ohau can answer your questions, provide you with an estimate, and help you schedule an installation date for this year to take advantage of the 26% federal tax credit while it lasts.