Ray of sunshine: Federal Solar Tax Credit Extended
Renewable energy has gained attention over the last decade. It not only offer economic benefit to the user but also helps us address global environmental issues. It leaves a minimum carbon footprint, which contributes to the future sustainable future. Solar energy is one of the most prominent forms of renewable energy. It is abundantly available anywhere.
Moreover, it involves the upfront cost, which becomes a point of concern for many people after recognizing the importance of public health and the benefits of inexhaustible energy. They are forced to support and promote different forms of renewable energy. In recent times, there has been an apparent inclination towards renewable energy production and consumption. Congress has offered multiple benefits and privileges to promote solar energy. The users can now easily plan to start using solar energy
What is the Federal Solar Investment Tax Credit (ITC)?
The Federal Solar Investment Tax Credit (ITC) allows the solar panel users to benefits from tax relaxation the government offers. It applies to homeowners, utility-scale solar projects, and commercial solar panel system users. It is the Federal Tax Credit for promoting the purchase and domestic use of solar energy systems. It relates to credit applied to the home owner’s income tax and the equipment cost percentage. The percentage of ITC depends on when you started construction. For example, if you started construction in 2020, you can enjoy 26% of the cost of equipment till the end of 2020. 2021 is the last year of the tax credit. Therefore to take advantage, it’s suggested to act now. The Federal Solar Tax Credit aims to make it more attractive and economical.
An important question to understand here is what exactly Federal Solar Tax Credit is. On the contrary to the common perception, it is not a tax rebate. It is the exception of the amount of tax due. On the other hand, tax rebate pays the user back. Therefore, if you don’t have federal taxes, you cannot take full advantage of them. The user needs IRS Form 5695 when filing the tax with your credit information on typical form 1040. Usually, good credit software includes tax credit by default.
Moreover, coordinate with your tax processor and accountant about your solar panel purchase and Federal Solar Tax Credit. In December 2020 is aimed to offer COVID-19 relief, with a two-year extension on the Federal Solar Tax Credit. Initially, the tax credit was expected 26% in 2020 to 22% in 2021. It was planned to gradually fade it out in 2022, but after extension, the 26% Federal Tax Credit will stay for another two years, including 2021 and 2022. It is an excellent imitative as it will ensure that people’s attention will be kept locked during this challenging pandemic and beyond. Furthermore, it reinforces the government to renewable energy and a sustainable future.
How do the Federal Solar Tax Credit works?
Does this apply to anyone whose house uses solar energy?
The Federal Tax Credit applies to the solar panel system. The user who buys using a solar power purchase agreement (PPA) cannot take advantage of the tax credit except for a few exceptions. The buyers who finance their solar panels using loans are eligible for the Federal Solar Tax Credit. In addition to that, the people living in a condominium can benefit from the provision if they contribute to the solar installation.
What expenses can be considered when calculating the tax credit?
The following expenses are included in the Federal Tax Credit.
- Solar equipment and panels used for installation (including mounting, inverters, wiring, and equipment).
- Labor costs, including Contractor and other associated installation costs, such as permitting fees, developer fees, and inspection costs.
- Solar storage units are included if charged exclusively with the storage system by the solar panels associated.