Solar panels have won over the hearts of environmentally and financially minded households across the nation.
Although adding one may require investment which typically costs around $16,000; over time, residential solar power systems can result in significant financial savings for you.
Additionally, there are a number of tax breaks and incentives available to help motivate homes to start generating renewable energy. For implementing a qualifying solar power system, there are federal, state, and municipal rewards you may be eligible for.
You may have also heard of the free solar panels from the government. But are they really free? Or is it just a scam?
In this article, let’s take a look at these questions and how you can get a solar panel from the government.
Introduction to Solar Tax Credits
A solar tax credit is a reduction in the amount of income tax you would have otherwise owed, dollar for dollar.
For example, receiving a $1,000 federal tax credit decreases your unsettled $1,000 in federal income taxes. Although it differs from the ITC provided to firms that operate solar systems, the federal tax credit is occasionally referred to as an Investment Tax Credit or ITC.
What Is The Federal Solar Tax Credit?
The federal solar tax credit is a tax break that can be used to offset a portion of the taxpayer's investment in a solar PV system on federal income taxes.
The Solar Investment Tax Credit (ITC) was established by the federal government in 2006.
When you receive a federal tax credit for solar panel installation, your tax bill will be reduced by the income tax credit you receive.
Since its inception, the U.S. solar business has increased by more than 10,000%, on average, per year over the past 10 years. The sector has invested billions of dollars in the American economy and generated hundreds of thousands of new jobs.
As long as the system produces electricity for a house in the US, you are eligible for the ITC for the tax year that you installed your solar panels.
For systems installed between 2020 and 2022, the ITC will offer a tax credit of 26% in 2021; for systems installed in 2023, the credit will be 22%. Therefore, consider a 22% to 26% discount while determining whether or not to install solar panels.
Solar Energy Systems
Installing a solar energy system, such as solar water heaters or a solar photovoltaic (PV) system that generates electricity for a home qualifies you for the federal solar tax credit.
Both solar water heaters and solar photovoltaic (PV) systems are eligible for the federal solar tax credit since they use the sun's energy to heat water and turn light energy from the sun into electricity.
Solar Renewable Energy Certificate
Another state-level solar incentive is the Solar Renewable Energy Certificate, sometimes known as a Solar Renewable Energy Credit.
After you install your solar power system and register it with the relevant state agencies, they will monitor the energy output of your system and sporadically provide you with SRECs as a perk. You can sell your SREC to a buyer who will give you money that is normally regarded as taxable income, such as your local energy company.
Do I Qualify For The Federal Tax Credit For Solar Energy?
If you satisfy all of the requirements listed below, you might be qualified for this tax credit:
- Your solar PV system is installed between January 1, 2017, and December 31, 2034.
- The solar PV system is situated in one of your American homes.
- If the electricity produced is applied to, and does not exceed your home's electricity use. Additionally, if all of your electricity comes from community solar projects, you would not be eligible.
- The solar power system is yours (i.e., you purchased it with cash or through financing but you are neither leasing the system nor paying a solar company to purchase the electricity generated by the system).
- The solar PV system is used for the first time or is brand new.
- Only the "initial installation" of the solar equipment is eligible for credit.
How To Claim The Federal Solar Tax Credit?
- Fill out the IRS Form 5695 with the required information
- Attach it to your federal tax return.
You should get a professional tax counsel to make sure you qualify for the federal solar tax credit.
You can read the instructions for completing the IRS forms here.
Are Solar Panels Really Free?
Solar panels that are absolutely free do not exist. Verified installers may provide the panels for free, but you, the buyer, will still be responsible for the cost of installation. You can receive a federal solar tax credit from the government, but that doesn’t mean it’s free.
Do Solar Panels Save Money?
The payback period is the amount of time needed to recover your initial investment. The good news is, solar panels can eventually help you save enough money on energy prices to cover their original costs.
However, the amount of money you save each month will depend on a variety of factors, including the size, the amount of energy your home uses, and others.
The payback period will be unique to your circumstances due to the variety of upfront costs and the variation in energy costs depending on where you reside.
Solar panels may not be free, but with the right decisions, you can maximize your savings from solar installations.
Take the Smart Solar quiz and learn more about the benefits of installing solar panels.
Meet the author:
Joey Cheek spent 10 years on the US National Speedskating Team where he competed in two Olympic Games, winning gold, silver, and bronze medals. He attended Princeton before diving into the startup and tech world. In 2011 he launched a livestreaming platform for sports before leading a team of engineers building next-gen news and content apps for Fortune 100 companies. He is the CEO and co-founder of SmartSolar.org, whose mission is to move the earth to cheap, abundant, carbon-free energy.
