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The federal tax credit is a major benefit of transitioning your home to solar energy. The current tax credit amount is 30%. It increased from 26% to 30% in the second half of 2022. Because the tax credit is such a huge selling point for residential solar, it is used in solar sales presentations to entice homeowners to go solar. But not everyone qualifies for the federal tax credit. In order to qualify for the federal income tax credit, you must have taxable income that exceeds the amount of the tax credit. If your solar sales advisor tells you that you’ll get a 30% tax credit without asking you if you have taxable income, they may be providing you with less than accurate information, possibly without even realizing it, so they can make a sale. Unfortunately, elderly people with no taxable income have been taken advantage of due to this fact. They were told they would get a tax refund that will cover 30% of their system, but because they don’t have taxable income, or enough taxable income to cover the tax credit, they are not legible to receive the credit and they end up having to cover the difference out of their own pocket. This often happens well after they have signed a long-term contract. In this case, a Solar lease or PPA may be a good alternative since the monthly payments are usually lower.

 

Does the solar tax credit work for solar leases or PPAs?

If you choose to go with a Solar lease agreement or a PPA, (power purchase agreement), the tax credit will not apply to you, because you are not buying the system. In this case, the leasing company actually gets the federal tax credit, because they are the owners of the system. That is how it works. It’s a pretty sweet deal for them! This is one of the reasons a lease or PPA often has lower monthly payments. The trade-off, of course, is that in 20 years or whatever the time frame stated in terms of the lease agreement ends, you do not own your system and you will have to sign another lease agreement or go back to renting electricity from the utility company. If you own your system, you get the tax credit and when you pay off your system, you own it outright along with all the power it produces. So the long-term benefits of owning as opposed to leasing can be tremendous. For more information see the question in this section on whether to own or lease your solar system.

 

How does the Solar Federal Tax Credit work?

The Federal Solar Tax Credit works by reducing the amount of federal taxes owed by the taxpayer. If a homeowner or business installs a solar system, they can claim a credit equal to 30% of the cost of the system on their federal tax return. For example, if a homeowner installs a solar system that costs $20,000, they can claim a credit of $5,200 on their federal tax return. This reduces their federal tax liability by $5,200, which means they will owe $5,200 less in federal taxes. Using this example, if at the end of the year, you owe nothing to the government on your federal taxes, you will get a refund check in the amount of $5,200.

 

When does the Federal Solar Tax Credit end?

The Federal Solar Tax Credit has been extended multiple times and is set to gradually decrease over the next few years. Currently, the credit is set at 26% for solar systems installed before December 31, 2022, and will decrease to 22% for systems installed between January 1, 2023, and December 31, 2023. After 2023, the credit will decrease to 10% for commercial systems and will no longer be available for residential systems.


Are Federal Solar Tax Credits Transferable?

Yes, Federal Solar Tax Credits can be transferred. This means that if a homeowner or business does not have enough tax liability to claim the full credit, they can transfer the unused portion of the credit to another taxpayer. For example, if a homeowner installs a solar system and only has $2,000 in federal tax liability, they can transfer the remaining $3,200 of the credit to another taxpayer. This makes it possible for homeowners and businesses to take advantage of the Federal Solar Tax Credit even if they do not have enough tax liability to claim the full amount.

Some states also offer tax credits and tax exemptions for transitioning to renewable energy sources like solar. Check out The Definitive Guide to Residential Solar in the U.S.  to discover state-specific tax credits, rebates, SRECs, tax exemptions, and other state-specific solar incentives that you can take advantage of in addition to the federal tax credit. If I mention any acronyms or terms that you do not understand, there is an extensive glossary section at the end of the book.

Introducing: The Definitive Guide to Residential Solar in the U.S. <==Click here to check it out on Amazon.com

A residential solar system is a great way to reduce your energy costs while doing something positive for your community and the planet. However, when a home solar system is not designed and sold with integrity, it can have a tremendous negative financial impact on the homeowner. Throughout The Definitive Guide to Residential Solar in the U.S., you will discover the many ways that homeowners have been taken advantage of by smooth-talking solar sales reps. Only to find out, often many months or years after they signed an ironclad contract, that their home solar system is not producing anywhere close to the amount of energy that they were told it would. Many of these homeowners found themselves having to pay a monthly solar bill on top of an electric bill, that they were told would vanish after installing solar panels. This is the unfortunate reality for thousands of solar pioneers and it is the #1 reason that residential solar deserves the bad reputation it has in many markets across the U.S.

You are about to discover everything you need to know to make an informed decision about solar, including warning signs that your solar sales rep may have no idea what they are talking about. This happens all the time in residential solar, and the individual homeowner is usually the one who gets burned big time.

Don’t get burned in solar – Get The Definitive Guide to Residential Solar in the U.S. – Maximize Your Solar Savings, Avoid Costly Mistakes, and Discover the Good, the Bad, and the Ugly Sides of Residential Solar

I trust that this information provides you with the necessary insight to make an informed decision regarding solar energy in Arizona. If you need additional clarification or help, please don’t hesitate to contact us.

Introducing: The definitive Guide to Residential Solar in the U.S. <==Click here to check it out on Amazon.com

A residential solar system is a great way to reduce your energy costs while doing something positive for your community and the planet. However, when a home solar system is not designed and sold with integrity, it can have a tremendous negative financial impact on the homeowner.

Throughout The Definitive Guide to Residential Solar in the U.S., you will discover the many ways that homeowners have been taken advantage of by smooth-talking solar sales reps. Only to find out, often many months or years after they signed an ironclad contract, that their home solar system is not producing anywhere close to the amount of energy that they were told it would. Many of these homeowners found themselves having to pay a monthly solar bill on top of an electric bill, that they were told would vanish after installing solar panels. This is the unfortunate reality for thousands of solar pioneers and it is the #1 reason that residential solar deserves the bad reputation it has in many markets across the U.S.