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Basics for Taking Advantage of Federal Solar Tax Credits

It’s tax season once again! That dreaded time of year when we have an extra big to-do on our project list that could end up being costly. Since no one likes to pay more in taxes than they need to, the Spark Energy team has created a quick guide on solar tax credits for 2022 and beyond.  If you’ve made investments to generate your own electricity you deserve to take advantage of tax breaks that can make energy even more affordable. 

Solar Tax Incentives for the Residential Clean Energy Property Credit 

There are two energy-related tax programs for homeowners. The Energy Efficient Home Improvement Credit is geared towards homeowners who increase energy efficiency so that less electricity is used. Then there’s the Residential Clean Energy Property Credit, also called the federal solar tax credit. This credit is specifically for home installations and upgrades that generate electricity. It’s part of the government’s efforts to increase green energy resources.

Who Can Claim the Residential Clean Energy Property Credit

The Residential Clean Energy Property Credit is more inclusive than the Energy Efficient Home Improvement Credit. You can claim the credit if:
  • The home is your primary residence.
  • The house is your second home. 
  • The home is newly built in the year.
The looser requirements means that the vast majority of homeowners should be able to get some kind of tax credit if they install solar equipment. 

Tax Credit Amounts for 2022

This is where the Residential Clean Energy Property Credit can get confusing. In 2022, Congress passed a bill that updated and extended the tax credit. It effectively changed the amount for the tax credit, but only for certain years. Here’s a quick look at how the tax credit amounts break down: 
  • Solar equipment installed between January 1, 2017 and December 31, 2019 will receive a 30% tax credit.
  • Solar equipment installed in 2020 or 2021 receive a 26% tax credit.
  • Solar equipment installed between 2022-2032 will receive a 30% tax credit.
  • Solar equipment installed between 2033 will receive a 26% tax credit.
  • Solar equipment installed between 2034 will receive a 22% tax credit.
Since credits for solar equipment can be claimed in more than one year, it’s important to know how much you can expect to get back. The tax credit will end in 2035 unless the federal government decides to extend it again.

What’s Eligible for the Residential Clean Energy Property Credit

Installing solar equipment isn’t the only way to take advantage of the Residential Clean Energy Property Credit. The federal government will provide kickbacks for a variety of energy-producing investments, including:
  • Solar panels and solar cells (original installation only)
  • Solar water heaters
  • Electric vehicle chargers (up to $1,000)
  • Fuel cell expenditures
  • Residential wind turbines that are under 100 kilowatt production
  • ENERGY STAR rated geothermal heat pumps 
  • Biomass fuel stoves with at least 75% efficiency rating
  For solar projects you can claim the cost of the equipment and labor costs. This includes fees for inspections and permits. The sales tax also applies, so make sure to claim the total cost. IMPORTANT NOTE: You won’t be able to claim battery storage for a credit on your 2022 taxes. That part of a solar panel system that isn’t covered until 2023. The battery will also need to be able to store at least three kilowatt-hours (kWh) to qualify. 

Purchasing Interest in an Off-Site Community Solar Project

There’s one more way to get tax incentives through the Residential Clean Energy Property Credit. Homeowners that purchase interest in an off-site community solar project may be eligible. However, the electricity that’s generated can’t exceed your energy use. And the tax credit doesn’t apply to electricity that’s purchased through a community solar project, only interest in the project.

Go Solar in 2023 for Bigger Tax Breaks

Ready to go solar? Want to get an even bigger tax break in 2023? Next year more solar equipment is eligible for tax credits. If you’re interested in going solar Spark Energy can help. We’ve partnered with VIA Energy Solutions to give our current customers an extra perk. You can have a free consultation with VIA and get a $50 credit on your Spark Energy bill even if you don’t end up going solar.    It’s a risk-free way to learn about your home’s solar potential and start reducing energy costs immediately! Contact us today to learn more. 
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