Tax Breaks for Solar Panels Are at an All-Time High: How Much You Would Actually Save?
Over recent years, the emphasis on renewable energy has seen a dramatic surge, with solar panels leading the charge in household applications.
To stimulate the adoption of these eco-friendly measures, the U.S. government has rolled out a series of tax credits, making solar panels not just an environmentally conscious decision, but a financially sound one too. But what do these tax breaks mean for the average homeowner, and how much could you potentially save?
What is a Solar Panel Tax Credit?
A tax credit, in its most basic form, is a direct reduction in the amount of income tax you owe. When you install solar panels, you could qualify for a federal residential solar energy credit, which deducts a percentage of the solar PV system’s cost from your federal income tax. This is not a mere deduction but a dollar-for-dollar reduction in your tax bill.
The Current State of Solar Tax Breaks
In an effort to reduce the country’s carbon footprint and promote sustainable living, the U.S. government increased the solar panel tax credit from 26% in 2020-2021 to 30% for installations from 2022 to 2032. This means that if you install a solar energy system in your home during this period, you can claim back 30% of the cost, including equipment, wiring, and installation fees.
However, it’s worth noting that these credits are set to decrease after 2032, dropping to 26% in 2033 and 22% in 2034, finally expiring in 2035 unless Congress extends it. For instance, if you had a solar system installed in 2022 at a cost of $27,000, the tax credit would allow you to recoup $8,100.
Additional Savings and Considerations
While the federal tax credit is significant, there are additional state and utility incentives to consider. Some states offer tax incentives, and certain utilities provide rebates. Remember, the exact amount you save can vary based on factors like electricity consumption, the number of panels installed, and even the orientation of your house.
Utility rebates, when provided to encourage solar PV system installations, are deducted from the system costs before calculating the federal tax credit. For instance, if you received a $1,000 rebate from your utility on a $18,000 solar system, your federal tax credit would be based on $17,000, giving you a saving of $5,100. On the other hand, state rebates usually don’t reduce your federal tax credit. So, using the previous example, even with a $1,000 state rebate on an $18,000 system, your federal tax credit would still be based on the full $18,000, offering a credit of $5,400.
Is Now the Best Time for Solar?
With the federal tax credits at a generous 30% and the emphasis on sustainability continuing to grow, there’s arguably never been a better time to consider going solar. Not only does it promise a reduced carbon footprint and energy bills, but with the available tax credits, the return on investment looks brighter than ever.
As always, before making any significant financial decisions, it’s advisable to consult with a tax professional to understand the full scope of benefits and savings available to you.
Editor’s note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates’ editorial team.
More From GOBankingRates
- 14 Key Signs You May Run Out of Money in Retirement
- Which Bank Gives 6% Interest on Savings Accounts?
- 3 Things You Must Do When Your Savings Reach $50,000
- Experts Share the 5 Best Money Moves To Make Before Retiring
