The Congress provided a bright spot for homeowners looking to use solar energy. The deadline for the federal tax credit for solar energy (ITC) was extended by Congress. This is one of the key policy drivers for solar power in America. This tax credit has made it easier for owners of solar systems that are residential, commercial, or utility-scale to get a tax credit based on a percentage. It makes this clean energy approach more affordable.
In December 2020, Congress approved an economic stimulus package to provide COVID-19 assistance. The package also included a two-year extension of the federal tax credit. The ITC for solar customers was initially scheduled to fall from 26% in 2020 to 22% by 2021 and then be phased out in 2022.
The tax credit will remain at 26%, thanks to the extension. This means that homeowners who buy new SunPower(r) solar systems in 2021 or 2022 may be eligible to receive a 26 percent credit toward their tax debt. 1 In 2023, they can also deduct 22 percent 1, and the credit will expire in 2024 unless it is renewed again.
Customers who are planning to buy solar, SunPower, and SunPower’s best-in-class network of solar installers will be pleased with this extension. The extension of the tax credit, after setbacks in the solar industry in 2020 because of COVID-19, will ensure that clean, renewable energy is resilient throughout the phase and beyond of the global pandemic.
It is essential to understand the ITC’s benefits and how it works to benefit from them. These five questions will help you get a better understanding of the ITC.
What is a tax credit?
You can apply a dollar-for-dollar tax credit to your income taxes. The credit can offset your entire tax debt if you owe $2,000 in federal taxes and are eligible for $2,000 towards the ITC. You may qualify for $2,000 toward the ITC if your tax debt exceeds $2,000, but you do not have to pay the total amount in one year.
Is this applicable to any person whose home uses solar energy?
This credit is only available to solar system owners who have purchased their equipment. The tax credit is unavailable to homeowners who lease or use a solar power purchase arrangement (PPA). Some leases and PPA agreements allow for exceptions. Owners who finance solar with a loan might also be eligible. Indirect solar owners may also be suitable. Indirect owners of solar installations may also qualify for the tax credit. 1
What expenses should be taken into consideration when calculating the tax credit
The ITC covers the following expenses: Equipment used to install solar panels (including mounting equipment, inverters, and wiring) and Installation costs, including permits fees, inspection fees, and developer fees. You may also be eligible for solar storage units, provided they are paid for exclusively by the solar panel.
How can I claim the ITC?
It can be claimed on your federal tax return. The ITC is only available to some solar customers. Consult your tax advisor to determine if you are eligible and how the tax credit may be applied to your particular circumstances.
Are there tax incentives available for solar installations in states?
Yes, many do. You can find out more here. Federal taxes credits generally do not affect state tax incentives. The reverse is also true.
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1 Tax credit subject to change. SunPower cannot guarantee, warrant, or advise its customers or partners about tax outcomes. Ask your tax advisor about the solar tax credit and how it applies to your circumstances. For more information on solar policy, please visit the dsireusa.org website.