Solar Tax Credit Example

For example claiming a 1 000 federal tax credit reduces your federal income taxes due by 1 000.

Solar tax credit example.

The federal solar tax credit also known as the investment tax credit itc allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. If you spend 10 000 on your system you owe 2 600 less in taxes the following year. For example an average sized residential installation of solar panels in california costs about 17 000. The federal solar tax credit is a great example of an innovative tax policy that encourages investment in 21st century energy systems and technology.

The credit for that system would be 26 of 17 000 or 4 420. Before you calculate your tax credit. What is the solar investment tax credit. The itc applies to both residential and commercial systems and there is no cap on its value.

First you will need to know the qualified solar electric property costs. For example if your solar pv system was installed before december 31 2019 cost 18 000 and your utility gave you a one time rebate of 1 000 for installing the system your tax credit would be calculated as follows. Thanks to the popularity of the itc and its success in supporting the united states transition to a renewable energy economy congress has extended its expiration date multiple times. 0 3 18 000 1 000 5 1007 payment for renewable energy certificates.

We ll use the national average gross cost of a solar energy system as an example. The itc was originally established by the energy policy act of 2005 and was set to expire at the end of 2007. The federal solar tax credit also known as the solar investment tax credit or itc is the single most important solar incentive available in the united states. The history of the solar investment tax credit.

At that price the solar tax credit can reduce your federal tax burden by 4 618. Add that to line 1. A tax credit is a dollar for dollar reduction in the amount of income tax you would otherwise owe. Federal solar tax credit.

When you install a solar system 26 of your total project costs including equipment permitting and installation can be claimed as a credit on your federal tax return. The solar tax credit expires in 2022.