Written by Sarah Lozanova

When preparing to install a solar system on your home and business, it is essential to consider its financial performance implications. Installing solar panels can be a wise investment, especially when eligible for the federal tax credit. The return on investment depends on several factors, including the cost of electricity paid to Georgia Power or the local electric utility. Another consideration is the federal tax credit because it can significantly reduce the net total solar system cost.

What is a solar energy tax credit?

Tax credits are a dollar-for-dollar reduction in income taxes owed to the federal government. Thus, they are more valuable to the taxpayer than a write-off. To be eligible for the tax credit, the homeowner or business must have a sufficient tax liability or appetite. Speak with a tax expert to determine eligibility. 

The U.S. government offers a generous tax credit that can dramatically lower the total cost of a solar energy system. This is called the investment tax credit (ITC) or solar tax credit and is available for residential, commercial, and utility-scale solar systems throughout Georgia. 

There is a 26 percent tax credit available in 2021, and this the incentive will decrease to 22 percent in 2023. Even off-grid solar systems or grid-tied solar systems with battery backup quality.

Unfortunately, the federal tax credit for residential installations is set to end at the end of 2023. The tax credit will decrease to 10 percent for commercial solar systems installed in 2022 and beyond. That means there are greater tax benefits available for systems installed before the end of 2021. 

What expenses qualify for the solar tax credit?

The tax credit is applied to the total solar system cost, including the solar panels, inverter, and other components, permitting, and labor. If a solar system costs $15,000, then a 26 percent tax credit is worth $3,900, and a 22 percent tax credit is $3,300. 

$15,000 x 26% = $3,900 – in 2020

$15,000 x 22% = $3,300 – in 2021

Contact the Solar Plus team to get a customized estimate for installing a solar system on your property. 

What solar systems qualify for the tax credit?

The homeowner or business must own the solar system; leased installations are not eligible. Primary residences, vacation homes, new construction projects, and businesses are all eligible for the solar tax credit. There are also tax write-offs for businesses, including accelerated depreciation or bonus depreciation available, which further reduce federal taxes. 

How do I apply the solar tax credit?

Solar system owners gain the benefits of the tax credit when filing federal taxes. Therefore, installing solar panels in 2021 can reduce the 2021 tax year liability, and the benefits come when filing in 2022. If you use a tax preparer, it is crucial to inform them that you installed a solar energy system and provide the solar invoice. To apply the residential tax credit, complete and submit IRS form 5695.

The solar tax credit is an excellent way to reduce the cost of your solar system. To take advantage of this opportunity before it ends, contact Solar Plus for a solar bid.