The federal government has been offering tax credits for solar photovoltaic (PV) systems for quite a while now. Originally, solar systems that were installed prior to the end of 2019 were eligible for a 30% tax credit. That was then lowered to 26% and at the end of 2020, the rate was to be lowered again to 22%. The solar tax credits were going to be lowered each year until they expire at the end of 2024. In December 2020, Congress passed an extension of the Investment Tax Credit, so the 26% tax credit was extended through 2021 and 2022. At the end of 2022, the rate is scheduled to be lowered to 22%. The law is still set to expire at the end of 2024, though it is possible it will be extended.
Who is eligible for Solar Tax Credits?
If you added solar to your house, and for some reason did not file for the tax credits, you may be eligible for them. The criteria for being eligible include:
Your solar PV system was installed between January 1, 2006, and December 31, 2023.
The solar PV system is located at your primary or secondary residence in the United States, or for an off-site community solar project, if the electricity generated is credited against, and does not exceed your home’s electricity consumption. The IRS has permitted a taxpayer to claim a section 25D tax credit for the purchase of a portion of a community solar project.
You own the solar PV system (i.e., you purchased it with cash or through financing but you are neither leasing nor are in an arrangement to purchase electricity generated by a system you do not own).
The solar PV system is new or being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment.
The tax credits available are not limited to the cost of the system you are purchasing. Other expenses related to the purchase of the system may also be included.
Solar PV panels or PV cells are used to power an attic fan (but not the fan itself)
Contractor labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection costs, and developer fees
Balance-of-system equipment, including wiring, inverters, and mounting equipment
Energy storage devices that are charged exclusively by the associated solar PV panels, even if the storage is placed in service in a subsequent tax year to when the solar energy system is installed (however, the energy storage devices are still subject to the installation date requirements)
Sales taxes on eligible expenses
Besides the federal benefits, there are also New York State benefits you may be eligible for. While not as extensive as the federal program, the credits for New York State taxes are not insignificant.
The New York Solar Tax Credit is 25% of your total solar energy expenses, or $5,000, whichever is lower. A major difference between the federal and state programs is that for the state tax credits, you do not have to buy the system. You are still eligible for the tax credits with a lease or a PPA.
The important thing to realize for both the federal and state programs is that they are both tax credits, which means that you must have taxable income to be credited. If you do not have the income, then you will lose out on the benefit. The federal and state governments aren’t going to cut you a check for the amount you would be saving. If you do not have the tax liability, then tax credits aren’t going to do you any good.
If you have any questions or concerns about the federal or state programs to grant tax credits for eligible solar photovoltaic systems, give us a call.