As we put 2020 behind us (finally), it is time to look forward to 2021 for many homeowners here in Massachusetts. So what does the future hold for you? Will you be continuing to spend more time in your home as the American workforce adjusts to remote working conditions and parents adjust to distanced or remote learning? 2020 forced many homeowners to take a closer look at the sustainability of their home energy use, from both an environmental and financial perspective, leading to an increased interest in solar installation.
Homeowners and businesses that are interested in installing solar might also be interested in saving on the cost of installation, and one of the most lucrative solar incentives is the federal solar tax credit, which was just extended for an additional two years! This tax credit allows for a reduction in your taxes based on a percent of the cost of installation, but this solar tax incentive won’t be around forever—here is what you should know.
The Federal Solar Tax Credit: What You Should Know
The Federal Investment Tax Credit, also known as the solar tax credit, was last extended back in 2015 to give more Americans access to the valuable benefits of clean solar energy. Through this tax credit, home and business owners who install a residential or commercial system can deduct a percent of their system installation cost from what they owe in federal taxes. The tax credit started at 30% and started to decline after 2019.
While the federal solar tax credit is no longer as high as it once was, it’s still in place and has recently been extended through the end of 2023, giving homeowners an excellent opportunity to save when they invest in solar sooner rather than later.
Here’s what the current timeline looks like for the federal solar tax credit:
2021-2022: Tax credit will remain at its current rate of 26% for residential and commercial systems
2023: Tax credit will be reduced to 22% for residential and commercial systems
2024 onwards: Tax credit will drop to 0% for residential solar installations and be reduced to 10% for commercial solar installations
Install Solar Now for Maximum ROI
For a maximum return on your solar investment, it makes sense to schedule your solar PV system installation as soon as possible to take advantage of the remaining incentive.
Let’s say you’re a homeowner who is planning to install a system that costs $20,000 in 2021 or 2022. After the 26% federal tax credit, the net system cost would be just $14,800 (and that’s without taking statewide SMART incentives or the MA state tax credit into account)! If you were to install your system in 2023, however, you would only receive a 22% tax credit, and the net system cost in the same scenario would be $15,600. If you were to wait until after 2023 to install your solar energy system, you would miss out on the tax credit completely, as it currently stands.
Why wait to install your system when you could earn more money in federal tax incentives and start enjoying the economic benefits of solar sooner?
How to Claim the Federal Solar Tax Credit on Your Taxes
The most important things to know about claiming the federal solar tax credit are:
1) Keep all receipts related to your solar installation project
2) Obtain and fill out an IRS Form 5695.
3) Add your renewable energy credit information to your typical IRS Form 1040.
Taking advantage of the federal solar tax credit is simple, especially with a solar contractor like Boston Solar at your side. As the #1 residential solar installer based in Massachusetts, we’ve helped homeowners all across the Bay State from the South Shore to the North Shore and from Cape Cod out to Central Mass understand how to take advantage of this valuable tax incentive.
Schedule your solar PV system installation while the 26% tax credit incentive is still in effect! Call 617-858-1645 or contact us to begin your solar project with a free quote.