Federal Solar Energy Tax Credits for Homeowners

Solar Energy Tax CreditSolar energy tax credits can significantly reduce the financial burden of solar panel installation. What tax credits are available for homeowners who want to decrease their monthly energy bills, preserve the environment and invest in their home’s value?

How Does a Tax Credit Work?

First of all, what’s the difference between a tax credit and a tax deduction? A tax deduction is subtracted from your annual income before your tax liability is calculated. While a tax deduction definitely lowers your overall tax liability of the end of the year, it does not provide a dollar-for-dollar return.

A tax credit works differently. First, calculate the amount of money you owe in taxes, then apply the credit. If you owe $20,000 in taxes but you are eligible for a $10,000 credit, you would then only owe $10,000.

Federal Residential Renewable Energy Tax Credit

To qualify for the U.S. government’s residential renewable energy tax credit, your solar panel installation must take place at a property you own and live at. Solar panel energy credits are not available for rental properties, unless you live there for a portion of the year. In that case, you could only claim a percentage of the credit based on the portion of the year spent residing at the home.

Property owners can claim a 30 percent federal credit for all solar panel installation, labor and materials if the system is placed in service up to the end of 2016. If the total credit exceeds the individual’s federal tax liability, he or she can carry over the amount to the next year, through the end of the 2016. It remains to be seen if the government will extend the credits for subsequent years.

Do Local and State Rebates Affect Eligibility?

If homeowners receive any other rebates from their solar installation company, the utility provider or a state or local credits, all must be deducted prior to calculating the total federal discount.

What’s Not Covered by the Federal Tax Credit?

Only costs directly related to solar panel preparation and installation – including labor and materials – are counted for eligibility. If the roof is significantly worn, you may decide to do a full roof replacement before installing solar panels. Reinforcing the existing roof structure to prepare for solar panels may be included in the total costs when calculating the tax credit, but a full roof replacement may not. It’s best to consult with a professional before executing roof work and filing federal taxes.

To achieve maximum efficiency from solar panels, homeowners may decide to trim or completely remove trees around their property. Landscaping costs are also not eligible for rebate under the federal credit.

It’s important to consult with a solar panel installation provider along with your accountant to determine the actual tax savings you can expect, as each individual scenario differs by state and income level. Talk to the professionals at Knockout Roofing today to find out more about federal and local solar energy tax credits that could transform solar panel installation into an affordable home update for you.