As the end of the year draws closer, it’s a good idea to prepare for tax season. Now, some of us may prefer to begin tax season planning in and around the month of April, but as your taxes become more complex, the practice of last minute tax preparation becomes less advisable. If you’re looking for a reason to jumpstart your tax prep this fall, solar is an excellent reason to do so. Not only are the benefits of solar great, but the potential tax relief of solar can help you as you plan for the future. Let’s examine some of the benefits of solar available to you, and identify how they can help you make the most of your next tax season!
Federal income tax returns must be filed by April 15th, 2024. It is possible that the deadline will be extended by a few days, but to avoid interest and/or penalties, you should plan to have your taxes completed and filed by then.
The Solar Investment Tax Credit, or ITC, was and remains one of the most impactful federal incentive programs for solar investments. Simply put, the solar tax credit represents the government identifying solar as a critical investment for Americans, and the credit is how the federal government has decided to help citizens make the switch to clean, renewable energy.
Prior to the passing of the Inflation Reduction Act, the solar ITC was slated to degrade in value, and would have ceased existing within a year or two. However, the ITC was correctly identified as a critical program in support of green energy initiatives, and as such the government decided to reup and reinvest in the project.
How does a tax credit work?
As of now, the solar ITC is a 30% tax credit with a ten year lifespan, meaning it’s more valuable than ever and will be around for longer than before. When it comes time to tackle your taxes, you’ll be eligible to utilize your tax credit in the upcoming tax season – meaning if you install before April 2024, you’ll be able to turn around and put that credit to good use!
A tax credit essentially serves to reduce your tax burden, so if this coming tax season you were to owe X, you would subtract the value of your tax credit from that value, reducing the amount you owe in taxes! With the solar ITC, that value is 30% of the cost of your system, including expenses like PV panels and cells, contractor costs, balance of system equipment, energy storage devices, and sales tax on any eligible expenses. Your solar provider can help you assess what kind of tax credit you can expect to receive based on the expenses associated with your project, and then you can apply that to your upcoming tax burden and see just how much you’ll save!
Solar Benefits for Tax Season
For those who are not able to utilize the entire tax credit, you’re in luck! There are special financing options available allowing you to realize more of the benefit of the credit than you may be able to on your own. Your solar consultant can help you navigate these financing opportunities, but suffice it to say there are ways to strategically apply this tax credit to your benefit. When tax season rolls around, the solar tax credit is going to be an important asset in saving you money, but it’s certainly not the only one.
For those interested in battery storage or EV charging, there are a plethora of incentive options available at both the federal and state level. Additional provisions of the Inflation Reduction Act pertain to the kinds of savings you can expect when it comes to investing in battery storage, energy efficient appliances, EV chargers, and even electric vehicles themselves! Most if not all clean energy investments are supported by some program or other, because both California and the US have clean energy goals that they are interested in achieving.
As our state and federal government shift the conversation and culture towards renewable energy, they have a vested interest in your participation. To that end, incentives like the tax credit will exist to make that transition to green energy easier for you. However, the trend on these policies is total adoption, and at some point that will be a requirement, not a request. At that point, you can expect there to be no further incentive opportunities in place, at least not as generous as our current solar benefits. The time to switch is while the government is interested in rewarding that behavior, not after, so be sure to schedule an appointment today to get started on your solar project, and take advantage of the many existing incentives this tax season!
