Did you know that the United States now has 108.7 gigawatts (GW) of solar photovoltaic (PV) capacity? All that green energy, in turn, comes from over three million solar PV installations. Together, they supply enough renewable energy to power 18.9 million homes in the nation.
What’s more, experts project the US to add at least 15 GW of total solar capacity by the end of 2021. The three-year extension of the federal solar tax credit is one of the factors that will fuel that growth.
That should be enough to prompt you to take advantage of that tax credit this 2021.
To that end, we came up with this guide discussing the chief facts you need to know about this incentive. Read on to learn how much the 2021 credit is, the eligibility factors, and other tax credits available.
A Quick Background on the Federal Solar Tax Credit
The federal solar tax credit is a dollar-for-dollar reduction on owed income taxes. Also known as the solar investment tax credit (ITC), it had an initial expiration date set at the end of 2006. However, Congress has issued several extensions since then, including delays on its phasedown.
The latest revision took place in December 2020. Back then, Congress passed a bill delaying the phasedown of the solar ITC.
The Federal Solar Tax Credit for 2021 and Beyond
If not for the Congress bill, the federal solar tax credit would have dropped to 22% this 2021. However, the recent legislation extended the 26% ITC for projects that start this year. The same goes for solar PV systems installed no later than 2022.
Installations that commence by 2023 can still qualify for tax credits, albeit at a reduced rate of 22%.
With the current bill, 2023 is the last year residential solar PV projects can qualify for an ITC. So, unless there’s a new bill, the ITC will no longer be available for home installations that start in 2024.
Commercial systems will still be eligible for a 10% credit from 2024 and beyond.
Eligibility Requirements for the Solar ITC
If you’re one of the more than 140 million taxpayers in the US, you may qualify for the 26% solar ITC. You can deduct that 26% from all eligible costs of your solar PV system.
One requirement is for your solar PV system to be at your primary or secondary residence in the US. That includes a vacation home, so long as you’re not using it as a source of income. Otherwise, you may have to claim a business tax credit instead of a residential ITC.
You must also own the system; you can buy it outright with cash or pay for it through financing. Leased solar panels are usually not eligible, as another entity owns them.
Another requirement is that the solar PV system is an original installation. That means it should be brand new, or you’re using it for the first time.
Solar PV System Expenses Covered by the Federal ITC
The federal ITC covers most equipment, labor, and development costs.
For instance, you can get a tax credit for the brand-new PV panels themselves. Hardware, including inverters, mounts, racks, transformers, and wires, are also creditable.
As for covered labor costs, these include the expenses charged by solar contractors. Onsite preparation, system assembly, and developer fees are some examples. You can also claim a credit on development and installation permitting fees.
State-Provided Solar Tax Credits
Several states, such as Iowa, New York, and Utah, have state-specific solar tax credits.
In Iowa, owners of residential solar electric systems may qualify for an 11% state tax credit. Moreover, Hawkeye State offers a similar incentive for solar water heaters. Both programs will expire this 2021, though.
In New York, homeowners with qualified solar PV systems can get a 25% state-provided tax credit. However, the credit only applies to solar equipment expenses. Moreover, the maximum tax incentive New Yorkers can get is $5,000.
Like New York, solar PV system owners in Utah can also get a 25% tax credit. However, for projects completed this 2021, the maximum incentive is only $1,200. It will then go down to $800 in 2022, $400 in 2023, and then expire in 2024.
Other Solar Incentives
Aside from tax credits, some state and local governments also provide solar rebates. These are cash-back programs that cut the cost of going solar at a later date. You can usually claim them upon the completion of your solar PV system installation.
An example is the Residential Clean Energy Rebate Program that Maryland offers. With this, qualified Free State residents can get a $1,000 rebate after installing a new solar PV system.
San Francisco, California, also has an ongoing solar rebate called the GoSolarSF program. With this, residential solar PV systems in SF can qualify for rebates of up to $2,000. For commercial solar property owners, the maximum incentive amount is $10,000.
Some local utility providers also encourage customers to go solar by offering rebates. Moreover, you can expect various discounts and deals if you work with a top solar company. A reputable solar installer will also inform you of and help you apply for other incentives.
On top of all those tax credits and solar rebates are tax exemptions. These include property tax and sales tax exemptions.
With a property tax exemption, you can exclude the value of a solar PV system from your property’s value. On the other hand, a sales tax exemption allows you to buy solar equipment without the added sales tax. Either way, these incentives can help reduce your overall solar PV system costs.
Currently, 36 states have solar property tax exemptions, including New Jersey and Nevada. There are also 25 states with sales tax exemptions, such as Arizona and Colorado.
Go Green for Less With These Solar Incentives
There you have it, your guide on the federal solar tax credit this 2021 and beyond. Now, you know that the 26% federal ITC runs from 2021 through 2022. You’ve also learned about state-specific tax credits and other solar rebates.
All those should be good enough reasons to get your solar PV system this 2021. Besides, the sooner your system is up and running, the sooner you can save on energy bills.
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