Can You Still Take Advantage of the Federal Solar Tax Credit in 2021?
The federal solar tax credit, for many homeowners, was a big reason for them making the decision to go with this innovative renewable energy source. But as of last year, things looked bleak for homeowners and businesses who wanted to go solar but have not yet made the leap because the tax credits were scheduled to end with the year 2020. Thankfully that’s no longer the case, as a last-minute extension paved its way through legislation.
If the federal solar tax credit is an important part of your choice for going solar, then here’s what you need to know about the recent changes to the tax incentive program.
What Is the Current Federal Solar Tax Credit?
The federal solar tax credit was established as part of the Energy Policy Act of 2005. The credit was originally set to last for just two years, expiring at the end of 2007. But because the program was so influential in helping American homeowners accept solar energy, it went through several subsequent extensions.
The most recent extension was scheduled to end at the start of 2021, but in December 2020, lawmakers voted to extend the solar tax credit for three additional years. Now, homeowners and businesses who decide to go solar in 2021 or 2022 will be eligible to deduct 26% of the cost of their systems from their taxes while those who wait until 2023 will be eligible to deduct 22% of the cost.
According to this most recent extension, starting in 2024 only commercial solar installations will be eligible for the federal solar tax credit, which will (by then) drop to 10%. In 2025, the tax credit for going solar will be eliminated entirely unless another extension is granted before then.
How Does the Solar Tax Credit Work?
If your solar energy system is installed in 2021, then you are eligible for this year’s solar tax credit. Should you not have enough tax liability to claim the entire credit in one year, then you have the option to “roll over” the remaining credits into future years for as long as the tax credit is in effect.
It is important to note that the federal tax credit is only available to homeowners and business who purchase their systems. If the solar energy system is being leased or the user signs a PPA with the solar installer, then the user is not eligible to claim the tax credit.
Don’t Put Off Going Solar – Buy in 2021 to Get the Highest Tax Credit
The solar tax credit program has been extended, but don’t let that lull you into putting off your solar purchase. Solar installers will be very busy in 2021 and 2022 performing installations for those looking to take advantage of the 26% deduction, so if you are thinking about going solar, talk to your local installer now to help ensure you get on their calendar.
With all the latest technological advances being made in solar panel manufacturing and battery storage, and the tax credit being extended, there’s simply never been a better time to go solar.