Last Chance to Take Advantage of Higher Residential Solar Tax Incentives
One of the biggest incentives to get solar energy for your home (besides being very eco-friendly and reducing your carbon footprint) is the tax incentives. Both federal and state governments have offered tax credits that help offset some of the up-front costs of purchasing a solar array for your home. They were as high as 30% in previous years, but they are declining and will eventually go away entirely as more people adopt solar and the cost to purchase it gets lower.
In 2020, the federal tax incentive is 26%, but it’s important to act quickly to take advantage of this incentive. It will go down to 22% in 2021, and by 2022 it will be gone entirely for homeowners (commercial solar tax incentives will remain in place indefinitely at just 10%).
How the Tax Incentive Works
The tax incentive is a credit, which means you can use it to offset federal taxes that you owe at the end of the year — the amount you pay the IRS when you file your taxes on or before April 15. To calculate the amount that you can deduct on your taxes, take the total cost of the solar array and multiple it by 0.26.
Example: $20,000 (total cost to install solar on your home) x 0.26 = $5,200 tax credit
You still pay the full $20,000 to get the solar panels installed, but you will not have to pay $5,200 in taxes that you otherwise would have owed to the federal government. If you don’t owe the full amount on this year’s taxes—for example, if your tax bill was only $3,000 this year—you can roll over the rest of the credit to offset $2,200 of taxes in a future year up to 5 years after you first claim the credit.
If you don’t normally owe any taxes or you get a refund, you won’t be able to take advantage of the tax credit. It’s not a “refund” where you get money back, it can only be used to reduce the taxes you owe.
State and Local Incentives
In addition to the federal tax incentives, many state and local governments also offer their own incentives, which can be claimed in addition to the federal incentives. In Utah you can claim a credit on your state income taxes of 25% of the cost of your solar installation up to $1,600. Like other credits, it can only be used to offset taxes you owe, and like the federal incentives, state incentives are also phasing out. You can find links to state incentives here.
Act Now to Maximize Your Tax Credit
If you want to take advantage of the 26% tax credit before it goes down in 2021 and disappears entirely in 2022, talk to Intermountain Wind and Solar right away to get started.