In an era where sustainability and eco-consciousness are becoming increasingly important, solar energy has taken center stage. Homeowners and businesses are embracing the power of the sun and thanks to the Inflation Reduction Act, signed into law in September 2022, there’s even more reason to make the switch. This act increases the federal income tax credit (ITC) to 30%, which can significantly impact your finances while contributing to a greener future.
How Does It Work?
Let’s demystify this tax credit using a straightforward example. Imagine you’re a homeowner planning to invest in a 10kW solar system priced at $30,000 in 2023. Providing you have a tax liability, with the 30% tax credit, you can deduct $9,000 from your expenses, reducing your system cost to $21,000.
When you file your 2023 federal tax return, you’ll utilize IRS Form 5695. On Part 1 of the form, you’ll calculate your tax credit and then apply the result to your 1040. The $9,000 you would have paid to Uncle Sam comes back to you.
Here’s where it gets exciting:
- If your tax bill is $20,000, you’ll only owe $11,000.
- If you initially owed $5,000, you owe nothing for 2023, and you would have $4,000 credit to apply to your 2024 federal tax return. It rolls forward until you’ve used it up.
Beyond the immediate financial relief, the federal income tax credit (ITC) offers more:
- Long-term Savings: Your solar investment not only pays off upfront but continues to save you money on energy bills for years to come.
- Environmental Impact: By switching to solar, you’re reducing your carbon footprint and contributing to a cleaner, sustainable future for all.
So, what are you waiting for? Let’s discuss how you can harness the power of the sun, save on your taxes and make a positive impact on the planet. Reach out to us today so we can explore solar options together and embark on this green journey. It’s time to put the sun to work for you!