A simple answer — NO. The Federal Solar Tax Credit has been extended! Congress passed a solar tax credit extension in August 2022 that will last through 12/31/2034.
This is excellent news as it was previously scheduled to end in 2024. That is an additional TEN years for consumers to take advantage of this incredible tax credit program. And not only that – clients that install solar energy systems in 2022 get an increase from 26% to 30%! That’s a nice bonus — a whopping $1,500 for an average solar client!
The current federal solar incentive is currently set at 30%. It is, however, scheduled to decrease in 2033 from 30% down to 26% and from 26% to 22% in 2034. There has never been a better time to go solar, as the incentives remain at their highest, and inflation is slowly creeping the prices of solar installations up.
For anyone looking to install solar panels for homes in Florida, look no further than PPM Solar! Our experienced team is ready to help!
The tax credit increase also applies to commercial properties. PPM Solar also specializes in installing commercial solar panels in Florida and can walk you through the entire ITC program. Modified Accelerated Credit System (MACRS, or Accelerated Depreciation) remains intact for commercial consumers claiming Investment Tax Credit.
How can I take the tax credit for solar panels?
The 2022 solar tax credit is currently at 30%. The federal tax credit is claimed against the tax liability of either a residential or commercial solar investor. Any investor in renewable energy can participate.
There is no maximum amount that can be claimed. Remember that the solar tax credit is non-refundable (taken against the tax liability as opposed to checking being cut) for residential consumers and for-profit corporations but may now be available for non-profits, academia, and government on a cash basis (funds issued similar to a grant).
Similarly, the commercial ITC solar tax credit expires at the end of 2034.
Solar roofing in Florida and backup storage systems qualify for the federal ITC.
How does a solar tax credit work?
The Federal solar tax credit (ITC) allows the consumer to claim a partial credit of the installed solar system expense on their Federal tax return.
Solar systems for residential consumers can cost anywhere from $15,000 to upwards of $25,000. The solar tax credit in 2022 can lessen the cost by 30%. This credit is designed to help homeowners who were hesitant to go solar due to the cost of a solar system and the opportunity to purchase one. If they meet all the eligibility requirements, they will receive the Federal credit when they file their tax return.
Now is the time to take full advantage of the Investment Credit Tax!
Although commercial property solar system costs are larger than residential properties, the percentage of the credit is the same, making it even more attractive.
The average total commercial solar electric system cost is:
- $50,211 for a Small Commercial System
- $100,423 for a Small to Medium Commercial System
- $200,846+ for a Medium Commercial System
Some of the installations that PPM solar does for the commercial sector reach $2 million per install.
While PPM Solar is not an accounting firm and does not provide tax advice, we are a certified solar contractor in Florida and can help assess the best way to maximize the solar tax incentives, and help you bring this information to your CPA.
Who is eligible for a Solar Tax Credit in 2022?
Residential eligibility requirements for the Federal Solar Tax Credit (ITC) are as follows:
- Homeowners are eligible- as long as the residence is in the US. This can also include a second(vacation) residence.
- The solar system must have been installed between January 1, 2006, and December 2022.
- Climate-friendly, energy-saving improvements must have been made to the home.
- Homeowners must actually own the solar system. It cannot be a leased unit.
- The PV system must either be new or be used for the first time.
Eligible structures are
- Mobile Homes
- Co-operative Apartments
- Manufactured Homes (as long as it conforms to the Federal Manufactured Home Construction and Safety Standards)
Commercial eligibility requirements for the Federal Solar Tax Credit (ITC) are listed below:
- A business that is subject to the U.S. federal income taxes
- The business must be located within the United States or in one of the U.S. territories.
- New and limited used equipment for the system must be used.
- Generating energy to heat a swimming pool is not eligible for the ITC.
- NEW: now, non-profits may be eligible for a refundable credit, as written in the legislation (Inflation Reduction Act of 2022). Nonprofits can now take advantage of the ITC via the direct-pay option.
What does the federal solar tax credit cover?
The federal solar tax credit covers any equipment directly related to the system. This includes:
- the panels themselves
Small roof repairs and direct site preparation can also be included in the eligible costs. Permit fees, costs of inspections, assembly, any developer fees, and original panel installation are covered. Solar battery storage units also make the list of covered items and sales tax!
Current systems owned by consumers installed in previous years can also be expanded.
How much does the Federal Solar Tax Credit save?
To calculate the amount of the solar energy tax credit that may be available to you:
- Take the amount paid for the system
- Multiply the amount paid by the percentage of the year that construction began
For example: if you paid $10,000 for a solar power system and began construction in 2022, the estimated solar panels tax break that you may receive would be $3,000.
The solar panel tax credit in 2022 is 30% so the calculation would be:
$10,000 x 0.30 = $3,000
Since the tax deduction in 2033 decreases down to 26%, the calculation would be:
$10,000 x 0.26 = $2,600
With the additional decrease in 2034 down to 22%, the calculation would be:
$10,000 x 0.22 = $2,200
Keep in mind that all eligibility requirements must be met to receive the tax benefits of the ITC. These incentives can change or end anytime by Executive, Legislative or Regulatory action.
The experts at PPM Solar monitor the incentives and any changes that may occur.
This ensures you will be presented with the most up-to-date information when purchasing your solar system.
What do you need to know about the Solar Tax Credit for 2022?
For consumers to claim the current 30% solar tax credit, the qualifying solar systems must be placed into service no later than December 31, 2022. It is not enough just to purchase the system. It must be installed and actively used.
Using solar energy to heat your home or water heater makes you eligible for the ITC.
Since the tax credit recently increased from 26% to 30%, this is the most cost-effective time to power your home with solar.
What does the Solar Investment Tax Credit (ITC) cover in 2022?
Does the ITC cover solar battery systems installation?
Yes! Solar battery storage systems are currently covered by the Investment Tax credit! PPM Solar is a certified Florida Tesla Powerwall company that offers free estimates on installing solar battery storage systems.
Keep in mind, however, that the residential battery storage system can only be charged with energy provided 100% by solar power. None of the energy can come from the grid, per the Solar Energy Industries Association (SEIA).
The SEIA guidelines for commercial battery storage systems differ slightly from those for residential systems. Commercial solar batteries are still eligible for the ITC if they are at least charged with energy obtained by 75% of solar power.
Using 25% grid energy to charge the battery is allowed.
How are the ITC reductions scheduled for 2020-2034
Since the enactment by the U.S. Federal Government of the Solar Investment Tax Credit in 2006, the rates have gone up and down. The original tax credit in 2006 was 30%!
There have been end dates scheduled, as well as several extensions.
The rates and reductions currently in place for 2020-2034 are:
- 26% for 2020-2021
- 30% for 2022-2032
- 26% for 2033
- 22% for 2034
As you can see from the reductions listed above, going solar sooner, rather than later, is going to get you the best return on investment. Although there have been several extensions in the past, there is no guarantee that the ITC will be extended in the future.
How to claim your Federal Solar Tax Credit in 2022: a step-by-step guide
RESIDENTIAL SOLAR TAX CREDIT *
- Determine your eligibility
- Gather all solar installation receipts
- Obtain the two IRS tax forms and instructions listed below:
Complete Form 1040 up to line 53 and then begin completing Form 5695.
- Calculate the amount of your solar credit.
- Using your receipts, enter the total amount paid for installing your solar system on line 1.
- If any of lines 2, 3, or 4 apply, enter those amounts.
- Total the amounts for lines 1-4 and enter that amount on line 5.
- Line 6 is the amount of line 5 multiplied by the 2022 tax credit of 30%.
- Answering line 7 with the applicable “yes/no” answer will determine if you complete lines 7b-11.
- Line 12 can be skipped if this is your first year applying for the ITC. If not, and you have a credit remaining from last year’s ITC, that amount should be entered on line 12.
- Line 13 is the total amount of lines 6, 11, and 12.
- Line 14 requires using the worksheet in the instructions for FORM 5695. Once completed, use the total of line 11 on the worksheet and enter that amount on line 14.
- Whichever amount on lines 13 and 14 is the lesser, that should be entered on line 15.
- If there is a difference between lines 15 and 13, that amount is to be entered on line 16. This determines if there will be a carryover credit for next year.
Enter the amount listed on line 15 of Form 5695 and 53 of Form 1040. As always, consulting a tax professional is highly recommended.
COMMERCIAL SOLAR TAX CREDIT*
- Determine your eligibility- owning the system and owe taxes
- Gather all solar installation expenses (installation and equipment)
- Obtain the IRS Form 3468 – Investment Credit tax form and instructions
- Using the instructions and expenses, complete form 3468
- Consult with your company’s tax specialist– they will know of any additional information that may be needed on your regular tax forms
Looking for a trusted solar installer in Florida? PPM Solar is here to help!
PPM solar has never been a sales company that uses high-pressure sales tactics when talking to prospective clients. We provide equipment options through a comprehensive process to guarantee the perfect selection for each individual project.
We offer only the best options. Before installation, each client receives a photorealistic 3D model of their home or business with the solar panels installed. This ensures that the design and engineering needs meet client expectations. Our team also performs on-site surveys and custom, detail-oriented energy consumption consulting that helps customers determine what size solar system they need.
We at PPM Solar, know how exciting it is to go solar and become energy independent. From answering questions and giving advice and guidance to installing and maintaining the solar system, the PPM team will be here for you through every step of the process.
Every day we continue to help our state have more accessibility to solar power. At the same time, while partnering with our clients, we are also helping our state become cleaner our state is for us and future generations!
*PPM Solar does not provide tax advice. We are helping consumers access relevant information. Please consult your tax professional.