Tax Credits

2021 Solar Tax Credit: How Does It Work?

There’s a reason why solar is more popular than ever before. Over the past decade, the cost of installing solar panels has dropped by nearly 70%. When you combine this drop in price with the variety of tax credits available, it’s easy to see why solar is more affordable than ever.

By far the most popular type of solar tax credit is the federal Solar Investment Tax Credit (also known as the ITC). Unfortunately, this federal tax credit has been changing on a year-to-year basis over the past few years.

This can make it confusing for consumers who want to take advantage of their solar energy when tax season rolls around. Luckily, we created this guide to help you understand how the 2021 solar tax credit works. Let’s get started!

What is the Solar Investment Tax Credit?

Before we dive into the specifics of the 2021 solar tax credit, it’s important to understand exactly what a tax credit is. A tax credit is essentially a monetary reduction on the amount of income tax you owe at the end of the year. So, a $3,000 tax credit would reduce the amount of income tax that you owe by $3,000.

The Solar Investment Tax Credit is a federal tax credit that you can claim when you purchase a solar PV system. A percentage of your solar system cost is subtracted from your final income tax. From 2016 to 2019, this percentage stayed at 30% of the cost of the solar system.

However, in 2020 it decreased to 26%. Now, in 2021, the percentage has again decreased to 22% of the cost of the solar system. From 2022 onward, the deduction percentage will fall to a permanent 10%. If you want to learn more about the specifics of the program, then make sure to check out the full guide from the United States Department of Energy.

How Does the Solar Tax Credit Work in 2021?

To take advantage of the Solar Investment Tax Credit, the system must be installed in the tax year. It must also generate electricity in the United States. It doesn’t apply to other countries. There also isn’t any maximum amount that can be claimed, so the bigger your system, the bigger your tax credit will be. So what types of expenses are included in this federal tax credit? You can claim a percentage of the following expenses:

  • Solar photovoltaic panels
  • Photovoltaic cells used on attic fans
  • The cost of contractor preparation, assembly, and installation (this includes developer fees, permitting fees, and the cost of inspection)
  • Equipment needed to balance the system, like wires, mounting devices, and inverters
  • An energy storage device that is attached to the solar photovoltaic panels
  • Any sale taxes on eligible expenses

It’s important to remember that you must be the owner of the solar system to receive the tax credit. As such, if you lease with a solar provider, then you don’t technically own that system. So, in this case, you wouldn’t be able to claim the tax credit. 

Who Is Eligible?

To qualify for the current solar tax credit, your solar system must have been installed between January 1st, 2006, and December 31st, 2021. Additionally, your solar panels must be located at either your primary or secondary residences. Alternatively, it can also be used at an off-site community solar project.

However, in this case, the electricity generated must not exceed your own home’s electricity consumption. As we mentioned before, you must also own your solar system. Finally, the system you install must be brand new when you install. The credit can only be claimed on the original installation, so it doesn’t apply to used panels. 

Do I Need to Be a Homeowner In Order to Claim the Credit?

No, you don’t necessarily need to be a homeowner in order to claim the credit on the solar tax. For example, if you’re a tenant-stockholder at community housing, then you can still use it. Similarly, if you are a member of a condominium, then you’re also eligible as long as you contribute toward the system.

In these cases, the amount that you put into the system would equal the amount that you could claim on your income taxes. However, if your landlord installs the system and you rent from them, then you can’t claim it. 

What Are Other Ways to Save Money on Solar?

The Solar Investment Tax Credit isn’t the only way you can save money on a solar system. The state you live in likely offers similar tax credits that you can take advantage of. To explore the ones available in Florida make sure to check out our guide. If you can’t afford to purchase a system, then don’t despair.

There are a variety of loan options that allow you to install the system and pay for it with small monthly payments. This option is ideal if you don’t have the upfront cash, but still want to take advantage of energy savings. We expand on the difference between the two main types of solar loans here, so you can decide which one works best for you. 

Want a Reliable Solar Contractor? Contact Compass Solar

As you can see, there are still plenty of savings to take advantage of, as long as install by the end of 2021. Unfortunately, finding a contractor you can trust isn’t always easy. That’s why if you live in the Northwestern part of Florida you should get in touch with Compass Solar.

We’ve been in the solar industry for over two decades. This gives us unparalleled experience and expertise when it comes to providing you with service. Not only will we do the job right the first time, but we’ll also help save you money during the process. So what are you waiting for? Contact us today and start saving money on your energy bill.