How Homeowners Can Capitalize on the 2024 Solar Tax Credits

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With everyone looking to save money and a greater emphasis on environmental stewardship, 2024 could be an excellent year to “go solar.” As we enter the new year, homeowners, business owners, and investors should be aware of how they can benefit from solar tax credits. 

The 2024 solar tax credits present a significant opportunity for homeowners to reduce their tax liabilities while investing in renewable energy. When combined with Opportunity Zone tax benefits, these savings can be even more substantial — allowing taxpayers to kick off 2024 on a high note. Attorney Ashley Tison gives us the inside scoop on how taxpayers can save big with solar tax credits as they take steps toward a more sustainable future. 

How it works 

“The solar tax credit, formally known as the Investment Tax Credit (ITC), is a crucial tool for property owners looking to invest in renewable energy,” explains Tison. “It allows them to deduct a certain percentage of the cost of their solar energy system directly from their federal taxes.” 

As Tison explains, this tax credit is an excellent option for property owners who have already installed solar panels and are in the process of paying them off or for those who are considering going solar. If someone has paid for the installation of a qualifying solar system, they can claim a 30% Investment Tax Credit, that directly reduces their income tax by a portion of the solar installation costs. 

The tax credit is nothing new. Before the Inflation Reduction Act was passed, the credit was called the Residential Clean Energy Tax Credit. However, with the passage of the Inflation Reduction Act, this 30% tax credit has been extended until 2032, allowing more property owners to consider the benefits of solar energy. The goal is to support the adoption of solar energy and thereby reduce citizens’ reliance on fossil fuels. 

Eligible systems  

As Tison explains, there are some guidelines that property owners must follow to take advantage of the solar tax credit. “Regarding solar tax credits, eligible projects typically include solar photovoltaic systems installed on residential or commercial properties,” he says. “Property owners should be aware that this credit applies exclusively to systems that they own outright. Leased systems do not qualify, and the system must be operational within the tax year for the credit to be claimed.”

One of the biggest qualifiers, as Tison states, is ownership of the solar power system. Systems that are on leased residential properties or that were already installed by a previous owner do not qualify for the credit. 

In addition, the system has to be installed on your primary or secondary residence where residency has been established for the year the taxpayer is attempting to claim the credit. While the credit can be claimed retroactively, the system must have been activated after 2017 to qualify. 

Approximately 3.2 million homes in the United States have solar panels installed, and the guidelines set out by the IRA may allow many to still qualify for this generous credit. 

Working with other incentives 

“A significant advantage of the solar tax credit is its compatibility with other incentives,” explains Tison. “It can be effectively combined with local and state incentives and the unique benefits of other place-based tax incentive programs like investing in Opportunity Zones. This combination can significantly enhance overall savings and investment returns.”

Opportunity Zones are an economic tool that allows people to invest in distressed areas to bolster economic and job growth within low-income communities. There are options to essentially “double dip” on these incentives by coupling solar installation with these opportunity zones, thereby qualifying for both programs. Solar tax credits can also be combined with sales tax or property tax incentives to boost a homeowner’s overall savings. 

Claiming the solar tax credit 

“To successfully claim the solar tax credit, meticulous record-keeping is vital,” Tison advises. “Property owners should keep all receipts and documentation related to the installation of their solar system. Consulting with a tax professional is also recommended to ensure the correct amount is claimed, all requirements are met, and that both are documented correctly.”

Because there are certain criteria that property owners must meet to qualify, record-keeping is critical to getting the credit applied. If you feel you may qualify for the solar tax credit, speaking with your tax advisor about how to gain access to the credit should be your first step. They can walk you through the paperwork you will need and the forms required to get the credit applied.

“Given the timeline outlined in the Inflation Reduction Act of 2022, where the Investment Tax Credit (ITC) decreases gradually and might be phased out by 2035, it’s prudent for taxpayers to act swiftly,” says Tison. “Investing now allows for maximization of the current credit rate, and this time frame provides a greater window to combine solar tax credits with Opportunity Zone investments, potentially yielding even more significant tax efficiencies and investment returns.”

It is now easier than ever before to take the environmentally-friendly step of going solar. With this expanded tax credit and the money savings available, property owners can feel secure in their choice to reduce their carbon footprint with solar panels.

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