What Is the Inflation Reduction Act?
The Inflation Reduction Act of 2022 was designed to reduce carbon emissions in America by 40% by 2030.
The Inflation Reduction Act not only incentivizes clean energy (like residential solar energy equipment), electric homes, and electric cars but also focuses on investing in green technology. It has extended solar tax credits!
Eligible Expenses and Equipment Under the Solar Tax Credit?
The following items are some of the expenses covered under the solar tax credit:
Solar PV (Photovoltaic) Panels
PV panels, sometimes known as solar panels, capture the sun’s energy and convert it into electricity. This resulting energy is typically used to power household equipment and appliances.
PV cells power solar or PV fans, which run on the sun’s energy once it’s been converted to electricity. Under the solar tax credit, the cells for these fans are covered as eligible equipment. The fans themselves, however, are not covered.
The solar tax credit also makes provisions for hired contractor labor to assemble, install, or prepare your residential solar equipment.
Also covered is the miscellaneous equipment needed to power your solar energy system, including inverters, mounting equipment, wiring, and other components.
Storage batteries provide a backup when solar power is limited, such as on cloudy days or at night. Storage batteries allow homeowners to store the excess energy generated from the sun on particularly sunny days.
Under the solar tax credit, you can buy and install storage batteries a year or more after installing your solar system and still claim the tax credit.
Along with your primary purchases, parts, and services, you can also claim the sales tax on eligible expenses.
How to Save Money with the Solar Tax Credit
Solar credits allow you to lower your federal taxes thanks to the Inflation Reduction Act. And remember, there’s no limit on the money you can spend. However, to qualify, you must take the credit the same year you had the equipment installed.
- Let’s say you spend $50,000 on your residential solar system. 30% of $50,000 is $15,000, meaning you can claim a tax credit of $15,000. That’s a sizable chunk.
- But if you spend $150,000 on eligible purchases for your residential solar system, you can still claim 30% of that total, which comes out to $45,000.
- What if you don’t owe $15,000 on your federal taxes? What if you only owe $10,000?
- Claiming your $15,000 solar tax credit drops what you owe in federal taxes to $0. You won’t get refunded for the remaining $5,000, but you can carry that amount forward into the next tax year.
- Aside from the attractive tax benefits, solar credits promise to save you more money in your everyday life.
- Following the installation of solar energy equipment, you’ll likely owe less for your monthly energy bills. Of course, how much you save in this area depends on the size of your residential solar system, the amount of sunlight you get, and how much electricity your household uses.
- One final advantage is that residential solar systems that are purchased outright (as opposed to leased) will increase the market value of your home if and when you decide to sell.
How Long do the Solar Credits Last?
The 30% credit rate will last until the end of December 2032. There will still be a tax credit as of Jan 1, 2033, but it will drop to 26%. In 2034, the credit will drop to 22%. And the solar tax credit will disappear altogether by 2035 unless Congress votes to keep it going.
Who Is Eligible for the Solar Tax Credit?
All taxpayers whose primary and/or secondary residences are located in the United States are eligible for the solar tax credit. You don’t have to fall within a specific income bracket to take advantage of it, either.
Remember, you’re only eligible for the solar tax credit if you purchase a solar system rather than leasing one.
Why Hawaii Is the Best for Solar Tax Credits?
The Inflation Reduction Act applies to federal taxes, but various states also offer state incentives. Whether your state’s taxing authority will reduce your state credit if you take advantage of the federal tax depends on where you live.
Hawaii is one of the best places to go solar, as the state offers a whopping 35% solar tax credit, with a maximum reduction of $5,000.
Using Multiple Federal Energy Tax Credits
Perhaps best of all, you aren’t restricted to only claiming the Inflation Reduction Act’s solar tax credit. You can use multiple federal energy tax credits on your federal return.
Claim Your Solar Tax Credit This Year
If you haven’t already installed solar energy equipment on your residential property, the good news is it’s not too late.
RevoluSun is committed to helping clients in Honolulu and surrounding areas install their solar energy equipment properly and professionally. Contact us today to learn more about our services or get started with your solar conversion project.