What it Means
CNN has reported that House Democrats have passed the Inflation Reduction Act, which if signed into law would pump $369 billion into green measures such as fighting climate change, improving energy security, and lowering the cost of electricity for consumers.
As part of the bill, several existing tax credits are tweaked or extended for solar-powered homes. As a result, a nonrefundable credit is provided off your federal income taxes for 30 percent of solar projects, and the amount has been increased to $7500 for new "clean" vehicles, such as electric vehicles, plug-in hybrids, and hydrogen fuel cell vehicles. Additionally, a new $4000 tax credit has been established for used electric vehicles.
Solar Tax Credit: What Is It?
As part of its incentive program for homeowners to switch to solar energy, the federal government has been offering the solar investment tax credit (ITC), also known as the federal solar tax credit, since 2005. The Inflation Reduction Act Solar Tax Credit: How to Take Advantage of It
There is a tax credit available for homeowners who install solar energy equipment in their homes during this year and up until the end of 2032 for a nonrefundable amount equal to 30 percent of the expenses they incur to install the equipment. This tax break can be applied to costs associated with a residential solar system of up to $100,000. There is no limit to those expenses; you are eligible for it regardless of whether you spend $20,000 or more than $100,000 on those costs.
Solar Tax Credit Eligibility: What Expenses Are Eligible? As per the Department of Energy, the same expenses that were covered by the old solar tax credit will be eligible for this new one as well:
- Solar photovoltaic (PV) panels.
- PV cells used to power an attic fan (but not the fan itself).
- Contractor labor for onsite preparation, assembly, or original installation.
- Permitting fees, inspection costs, and developer fees.
- All equipment needed to get the solar system running, including wiring, inverters, and mounting equipment.
- Storage batteries. (The tax credit can be claimed for these items even if you purchase them and install them a year or more after you have installed a solar system.)
Who Is Eligible for the Solar Tax Credit?
All taxpayers who own a primary or secondary residence located in the U.S. can take advantage of it. It is available to taxpayers of all income levels. This deduction can be taken either if you itemize your taxes or if you take the standard deduction when filing your taxes.
New York State Tax Credit for Solar
The state of New York, however, is not going to reduce its solar incentives if residents take advantage of the federal incentives. State residents are entitled to a 25 percent tax credit on qualified solar energy system equipment expenditures up to $5,000 in their state taxes. You don’t get a refund if that amount is more than what you’d owe, but you can carry over the difference for up to five years.
Using Tax Credits to Your Advantage
As these programs continue to take more present shapes in our infrastructure, the interest in solar energy rises. This particular incentive aside, there will be many more in the coming years and the associated questions they raise to new homeowners considering solar will be the same:
- Is Solar a Good Investment?
- How Does Solar Power Increase Property Value?
- What uses the Most Electricity in a Home?
- What is Solar Energy? How do Solar Panels Work?
Thankfully, the team here at Greenlogic has developed these articles to educate and explain how these advancements in the solar industry affect your potential investment. There have been several key developments in the industry during the pandemic, one of the most impactful being LG’s departure from the solar industry.
If you’d like to discuss the particular needs of your home, power consumption, and whether or not solar is right for you, contact us here.
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