How The Solar Tax Credit Works (For Beginners)

how does the solar federal tax credit work how do you know if you're eligible for the solar tax credit what does the solar tax credit go towards and how do you claim the tax credit once you've gone solar those are all questions that we're going to be answering in today's video if you guys have been following the solar industry you may know that in July of 2022 Congress extended the solar federal tax credit which was included in the inflation reduction Act of 2022. what this did was increase the solar tax credit to the amount of 30 percent for the next 10 years meaning the federal government will reimburse you 30 percent of your overall project cost for investing into a solar power system now the first thing that you guys have to understand is that this is a tax credit not a tax rebate meaning you can only get back in taxes what you pay therefore if you do not incur a tax liability you will not be eligible to get any money back now the good news is the government will actually give you five years to claim the tax credit so let's just say you signed up for solar this year but maybe you took some time off from work and traveled and you don't have a significant tax liability well in that instance if your tax liability did not exceed the solar tax credit amount in that first year you would have an additional four years to claim the remaining amount now the next question that you might be asking after you understand what it means to be eligible for the tax credit is how do you specifically calculate the tax credit amount for a solar system now thankfully this is going to be the easiest part of the video all that you would do is multiply your overall project cost by 0.3 to get your exact solar tax credit amount the overall project cost will include all of the components within a solar investment and it can include a battery backup batteries of All Brands chemistries and costs are eligible for the tax credit the main criteria you would need to meet for a battery to get the solar federal tax credit would be that the taxpayer must be the owner of the battery system and the battery must be installed at the taxpayers residents batteries installed after 2023 must be at least three kilowatt hours in size but will not have to be charged with solar energy in order to be eligible for the tax credit again the three main requirements that you must complete in order to be eligible for the tax credit are you must own your home your system must be new and you have to own the system therefore leasing a solar system will not qualify for the solar tax credit I do not recommend leasing a solar system in the first place which is also known to some as a power purchase agreement but that's a topic for another video now how does the tax credit work with State local and utility incentives the federal tax credit is not the only incentive that's available to homeowners who switch to solar you could be eligible for other incentives offered by your state government or even your utility company the types of incentives could potentially impact how much your solar federal tax credit will be worth in most cases if you're getting a rebate from your utility company the value of utility rebate will be subtracted from your total costs before the federal tax credit is calculated this will reduce the value of your tax credit here's an example if you install our solar system for twenty thousand dollars and you get a one thousand dollar rebate from your utility company instead of the tax credit being based on the initial twenty thousand dollar cost it would be instead based upon the price after subtracting the utility rebate in this case that's nineteen thousand dollars unlike utility incentives state government incentives usually don't need to be deducted before the federal tax credit is calculated so if you installed a twenty thousand dollar system and you got a one thousand dollar state government rebate your solar tax credit would be based upon the initial price of twenty thousand dollars in this example that would mean that the tax credit would be worth thirty percent of twenty thousand for a federal tax credit worth six thousand dollars that would mean that you would get a total of seven thousand dollars in incentives solo renewable energy credits also known as s racks which are popular incentives for homeowners who live in the Northeast will work similar to State incentives and not impact the amount of your tax credit as always guys if you're in the process of shopping for different solar options for your home and you would like to get a quote or maybe you already have a quote and you'd like to get a comparison just to see that you're getting a good deal feel free to chat with us on a short Zoom call by booking call with the link below this video and we'd be happy to provide you with the design as well as the pricing so now that we understand who and what qualifies for this tax credit how do we file for this tax credit and when should we expect to see money back well when it comes time for you to file taxes you will fill out what is called a 5695 form I know that these IRS forms can seem pretty intimidating but trust me when I say that this is one of the easiest things that you'll ever have to fill out when working with the IRS how might receiving money back differ from somebody who's a W-2 income versus somebody who's say a 1099 independent contractor if you make a W-2 income your employer likely automatically takes out the income tax from your check therefore when it comes time to file taxes people in most cases are filing for a tax return if this is you your solar tax credit would likely come in the form of a check or refund being that you've already paid the IRS your income tax on the other hand if you're 10 nine or you're an independent contractor your tax credit would simply go towards paying off the tax bill that you would likely already incur leaving you with a reduced tax bill both of these ways slightly differ on how you're going to see the tax credit but will in no means impact the value of your tax credit homeowners use primary source of income is social security or disability will in most cases not qualify for the solar federal tax credit under the stipulation that over the course of five years after they've purchased the system they have not incurred an income tax liability again when you do receive that tax credit or you have those savings that would have previously gone towards paying off taxes You Are by no means obligated to put that money back towards your solar system and you can do whatever you please with that money if you're considering putting your money back towards your solar system or specifically your solar loan most solar financing companies will start your loan off for the first 18 months at a reduced rate and allow for you time to get that tax credit and put it towards a loan at which point it would re-amortize and you would have a lower monthly payment but again if this is not something that you like to do you're by no means obligated to do so I am required to make this disclaimer but I am not a tax professional nor am I giving you tax advice the information I provided you is simply for educational purposes and to kind of help you wrap your head around how this tax credit works if solar is something that you'd like to look further into I recommend subscribing to this Channel and if you found value in this video I would appreciate if you could give it a like so hopefully you can reach other people and other people can be more informed when going solar again my name is Jack and I will see you guys next time

Channel: Solar Pros

Views: 6,813

Keywords: Solar, Solar panels, Solar panels for home, solar inverter, q cell, sun power, solar battery, enphase, solaredge, residential solar, Franklin whole home, micro inverters, string inverter, solar quote, how much do solar panels cost, solar panels on roof, best solar panels, best solar battery, best solar inverter, Solar Tax credit, Solar federal tax credit, solar state tax credit, renewable energy tax credit

Id: 6_nRhwPO0uo

Length: 6min 31sec (391 seconds)

Published: Mon Dec 19 2022