Why You Should Install a Solar System This Summer
Federal Solar Tax Credit Set to Expire in 2022
The federal government offers individual homeowners tax incentives for installing qualified energy-efficiency improvements in their homes, including installing a solar panel system. However, each year, the federal tax incentive for installing a solar system decreases and it is set to expire in 2022.
Keep reading to learn more about how the federal solar tax credit works and why you shouldn't wait to install your solar system.
How Does the Federal Solar Tax Credit Work?
The federal solar tax credit is a program that provides individuals with a dollar-for-dollar reduction in their owed income tax. Homeowners who install solar systems on their homes can claim a percentage of the cost of their solar photovoltaic system (also called a PV system) on their federal income taxes. For example, if you claim a $1500 credit, your owed federal income taxes for that year are reduced by $1500.
You can claim the credit for the tax year in which your solar system was installed. Therefore, if you install your solar system in Summer 2021, you can claim your credit on your 2021 taxes (which you will file in April 2022).
To claim the federal solar tax credit, you will need to fill out IRS Form 5695 and attach it to your federal tax return. Information on filling out this form can be found here.
How Much Can I Claim?
As mentioned earlier, the percentage that can be claimed has decreased each year and the program as a whole is set to expire in 2022. If you installed your system before December 31, 2019, you could claim a 30% credit on your 2019 taxes. If you installed your system before December 31, 2020, you would qualify for a 26% credit. Meanwhile, if you install your solar system before December 31, 2021, you will be able to claim 22%. Currently, there is no maximum amount that can be claimed.
According to the U.S. Department of Energy's solar tax credit guide, expenses when calculating your income tax credit include:
- Contractor costs associated with preparing the site, assembly, developer and permitting fees and inspection costs
- Balance-of-system equipment (inverters, mounting equipment, wiring)
- Energy storage devices exclusively dedicated to the solar system installed
- Solar panels or cells for attic fans (the fan itself does not qualify)
When calculating your tax credit, it is important to note that some rebates and state incentives can affect the amount you're allowed to claim. For example, rebates provided by your electric utility must be deducted before calculating your tax credit. Therefore, if your costs were $15,000 and your utility company gave you a $1,000 rebate, you would calculate your tax credit based on $14,000 ($15,000 - $1,000). However, if you only get a state rebate, you can calculate your federal tax credit based on the whole $15,000 as state rebates do not generally impact your federal tax credit.
To learn more, review the U.S. Department of Energy's guide here.
Other Reasons to Install Your Solar System This Summer
If you are considering installing a solar system, there is no time like the present. In addition to taking advantage of the federal solar tax credit before it is too late, there are many other reasons why you should not wait to install a solar system. Keep reading to learn more.
The Sooner You Start, the More You Save
In San Jose, we enjoy hot, sunny summers. While solar systems continue to work efficiently in the winter, by installing your solar system now, you can take advantage of our great weather and start harvesting maximum amounts of solar energy right away. By relying on solar energy instead of your local electrical grid, you can avoid the ever-increasing energy costs and reduce your carbon footprint.
Though some people are hesitant because of the initial cost of installing a solar system, you can expect to break even on your solar system in approximately eight years - and then enjoy entirely free solar energy. Since the average solar system is designed to last 25-30 years, you will enjoy decades of free energy. Furthermore, with a backup battery storage system incorporated into your solar system, your home will stay up and running even if your electric grid goes down due to weather or an emergency.
Take Advantage of Net Energy Metering (NEM)
In California, homeowners who install solar systems may be eligible for the state's net metering program. With CA's NEM program, homeowners who generate their own energy through a solar system can send excess energy back to their utility provider and receive a credit on their electric bills. To participate in this program, you will need to have a grid-tied solar system. The NEM program is currently available to PG&E, SCE and SDG&E customers. To learn more about NEM, click here.
California Solar Initiative (CSI) Single-Family Affordable Solar Homes (SASH) Program
SASH is a program that provides incentives for installing solar on qualifying affordable, single-family housing. The goals of this program include decreasing electricity usage, reducing energy bills and decreasing the cost of solar ownership, making it more accessible to homeowners of varying income levels. This program offers an incentive of $3 per watt.
To qualify for this program, applicants must receive their electrical service from PG&E, SCE, or ADG&E and own and live in their home that is classified as "affordable housing" by CA Public Utilities Code 2852. Additionally, the household income should be 80% or below the area median income. To learn more about this incentive program, click here.
Are you considering installing a solar system? Reach out to Valley Heating, Cooling, Electrical and Solar for more information. Our solar specialists are standing by to help you today.