In the United States, solar panel installation averages from $15,000 to $30,000, with a price per watt of approximately $3.
In India, the cost is approximately Rs. 75,000 to Rs. 85,000 for a 1W system. For a 5kW system, it is Rs.3,15,000 to Rs. 3,57,000.
In China, the average cost is around $14,502 for a 5.5kW system.
In Germany, the average was about $17,050 for a 5kW system and $34,100 for a 10kW system. The average price per watt in Germany is around $3.
As of 2022, the average sales price in Japan for solar PV modules per watt was ¥47, while the average generation cost of residential photovoltaics was ¥18 per Kilowatt-hour.
The initial set-up cost of a solar project encompasses many variables. They include:
- Solar panel type and technological advancements.
- Capacity and the number of panels required – determined by energy consumption.
- Sunlight availability and geographical location.
- Local regulations and permits.
- Installation timing and cost of labor.
- Battery storage option.
It is not a sum that all property owners can comfortably fork out. Incentivizing solar installations through tax credits drives renewable energy adoption by making solar installation more affordable.
Read: Solar Panels: Your Complete Guide Before You Invest in One!
What is a tax credit?
It is a dollar-for-dollar reduction of federal income taxes, the same amount as the federal tax credit claimed. If the taxpayer has a tax liability of $5,000 and is eligible for a $1,000 tax credit, the total owed is $4,000.
What is the federal solar tax credit?
In the United States, the Federal Solar Investment Tax Credit (ITC) is a credit claimed on federal income taxes for a percentage of the set-up cost of a solar system.
To qualify for a solar panel tax credit, install the solar system during the tax year and begin generating electricity.
How does the solar tax credit work?
The solar tax credit is available for property owners, whether individuals or businesses. It makes investing in solar energy systems more financially viable.
Understanding the solar tax credit program impacts the financial feasibility of renewal energy adoption.
Here are the workings of solar tax credit explained in simple terms.
Percentage-based credit:
It is credit offered at a one-off percentage of the total system cost. Solar tax credits for businesses or individuals are duly available.
Qualifying expenditures:
The credit extends to expenses directly associated with solar panel installation, encompassing costs like mounting racks, wiring, and labor fees.
Property eligibility:
Property owners, irrespective of residential or commercial buildings, are eligible to claim in their federal income tax filing for the year the system was installed and operating.
Tax liability reduction:
A dollar-for-dollar reduction lowers the tax bill for the year by the credit amount.
Carryover provision:
If the solar tax credit exceeds the total tax owed, the excess credit goes to the following tax period.
Check if there are limitations governing this provision.
- Does it have an expiry date?
- Is there a one-year limit?
Note that most solar tax credits are non-refundable. Accurately record and report any carried-over credit on your tax filings each year.
Solar tax credit extension
In August 2023, the United States Congress announced the solar tax credit extension for solar panels through 2023 and 2024. It is good news for property owners who have already invested in a solar system and would-be investors.
This incentive provides substantial savings for solar energy adoption, encouraging solar panel installation. It applies to both residential properties and commercial buildings.
Residential property owners are eligible for residential solar energy tax credit of up to 30% of solar system costs in 2023 and 2024.
Commercial and industrial property owners will enjoy a 10% solar investment tax credit for the same period.
Read:
Residential solar panel installation
Commercial solar panel installation
Who is eligible for the federal solar tax credit?
Available to all property owners who also own the solar energy system. It has to be a new solar system or an original installation. A system inherited from the purchase of a sub-sale property is ineligible.
It is also unavailable to property owners who lease the solar panels or tenants who install the solar system on a rented property.
Federal income tax solar credit is available to claim once in the year the system is switched on and begins generating electricity.
What are the expenses included in the tax credit?
These expenses generally include the costs directly associated with solar energy system installation:
- Solar PV panels or PV cells
- Installer labor costs
- Permit fees and inspection costs
- Balance-of-system equipment: wiring, inverters, mounting equipment
- Energy storage devices
- Sales taxes on eligible expenses
Will other solar incentives I receive affect the federal tax credit?
Possibly differing from state to state, it also depends on where the incentives are from.
State tax credit
State tax credits do not directly influence federal tax credits. However, note that state tax credits might lead to a higher taxable income for federal taxes. As you are not deducting as much at the state level, it impacts the taxable income reported for federal tax purposes.
State government rebates
Rebates from the state government generally do not reduce your federal tax credit. Usually a one-time solar system installation rebate, solar owners can benefit from state and federal incentives for the same solar installation.
Solar renewable energy certificate
Whether in the form of cash or other incentive in return for your excess renewable energy, this is considered an income. This income likely increases your gross income without impacting your federal solar tax credit eligibility.
Local utility rebates
Through a federal law exemption, the utility subsidies are excluded from income tax calculations. This rebate is subtracted from the total solar system costs before the federal tax credit is calculated.
Subsidized loans
Usually a form of solar installation financing with reduced interest rates, such loans do not directly affect the federal tax credit. Other favorable terms include extended repayment periods and waived processing fees.
Tax exemptions
Tax exemptions typically operate independently from the federal tax credit. These exemptions reduce or eliminate the portion of income or property subject to tax. They might apply to the assessed value of the solar energy system for property tax purposes related to solar investments.
How to claim the solar tax credit?
Claiming the Federal Investment Tax Credit (ITC) happens when filing federal income taxes. Here are the general steps to take:
- Confirm eligibility: Ensure the solar energy system qualifies for the federal tax credit. It typically means a system installed on a primary or secondary residential or commercial property.
- Documentation: Gather all receipts, invoices, and documents related to the solar panel installation from the point of purchasing the hardware. Include associated expenses such as mounting equipment, wiring, and labor costs.
- Fill out the income tax form: For residential energy credits, use IRS Form 5695. For commercial property, use IRS Form 3468. Enter your eligible solar expenses in the appropriate sections of the form.
- Calculate credit: Calculate the tax credit amount based on the percentage of the qualified expenses for the solar system installation.
- Transfer credit: Transfer the calculated credit amount to the appropriate section of your federal tax return to reduce the federal income tax you owe for the tax period.
- File your taxes: Submit your federal tax return, including the respective solar tax credit form, before the IRS filing deadline.
Potential pitfalls include misconceptions about eligibility or documentation errors. Understanding these rules is the reason why prior research is so important.
If you find this process complex, consult an accountant or tax professional. They will guide you on accurate submission and proper claiming based on your situation to maximize your benefits.
Frequently Asked Questions (FAQ)
Can I claim the tax credit if I am not the homeowner?
Yes and No.
Yes, if you are a tenant-stockholder at a cooperative housing corporation or contribute to the costs of an eligible solar energy system.
No, if you rent the property and the solar system installation was paid by the owner. You must own the system to claim tax credit.
How many times can I claim the solar tax credit?
Once. You can claim a federal solar tax credit once for each eligible solar energy system installed.
Is the solar tax credit refundable?
Non-refundable. If your tax credit exceeds your tax liability, you can carry over the balance to the following tax year.
Does the solar tax credit work if I do not have tax liability?
You might not be able to fully benefit from the Federal Investment Tax Credit (ITC).
There is a provision for you to carry over the excess balance to the following tax period. However, this is valid while tax laws and regulations remain unchanged.
Conclusion
Adopting a greener lifestyle by embracing renewable energy isn’t just about going solar. While you invest in a more sustainable future, the solar tax credit is a welcome financial incentive without stretching your budget.
Seize the opportunity to make a tangible difference by harnessing the sun’s potential. Tax credits don’t only offer financial benefits; they also play a significant role in fostering a sustainable, eco-friendly future. Take action if you find investing in solar panels worthy after exploring solar tax credits.
Need further clarification? Contact Just Solar for expert guidance on solar panel installation and the available solar tax incentives.
