Up to 30% Off Solar Installation? What You Need to Know About the Federal Solar Tax Credit

Hey there! If you‘re thinking about installing solar panels on your home, you likely have some questions about the costs. Well the good news is, the federal government is encouraging Americans to go solar by offering a generous investment tax credit that can slash your installation costs by up to 30%!

In this guide, I‘ll tell you everything you need to know to take advantage of this credit and make solar affordable. I‘ve got all the details on the tax credit timeline, eligibility requirements, expenses covered, and how much you could potentially save. I‘ll also provide some useful resources to learn more about solar incentives where you live.

Let‘s dive in!

A Brief History: How the Solar Tax Credit Came to Be

First, let‘s quickly look at the background on the solar investment tax credit (ITC). This federal policy has enjoyed bipartisan support since it was first introduced back in 2006 to spur solar adoption. Here is a brief timeline:

2006 – A 30% federal tax credit for residential and commercial solar installations established
2016 – Solar ITC extended to 2022 with a gradual phase out schedule after
2020 – Solar tax credit renewed as part of COVID relief package, now extended to 2034!

So in late 2020, lawmakers came together in a rare act of bipartisanship to extend this popular credit. This means the 30% solar tax credit is now available in its current form all the way through 2032!

Below you can see a handy table summarizing the current ITC amounts and schedule from 2022 through the end of the program in 2034:

Year	Federal Solar Tax Credit Amount
2022-2032	30% credit
2033	26% credit
2034	22% credit

With panel costs continuing to fall and electrical rates continuing to rise, the timing really couldn‘t be better to harness the power of the sun with some rooftop solar panels!

What Solar Equipment & Expenses Are Covered?

Now, what specifically does the 30% federal solar tax credit apply to? I know that was one of my first questions when exploring solar!

Luckily, the credit covers far more than just the solar panels themselves. It includes the full range of equipment and services required to install and connect your solar array, including:

Solar modules/panels – The credit applies to the core solar panel equipment and related housing
Inverters – Needed to convert solar energy to usable AC electricity
Electrical wiring and mounting hardware – All cabling/conduit required to integrate system
Installation labor – Costs for contractor home consultation, system design, permitting fees, inspection, panel mounting/configuration
Energy storage – Adding something like a Powerwall? Storage installations after 2022 must have a capacity of at least 3kWh to qualify

So that‘s a nice comprehensive list of the solar-related expenses the tax credit encompasses. This helps explain why the ITC could save you thousands!

Who Qualifies for the Federal Solar Tax Credit?

Not everyone is automatically entitled to this generous 30% subsidy from Uncle Sam though. You do have to meet a few key criteria to actually claim the solar tax credit, including:

System must be installed at your primary or secondary home located in the United States
You must own the solar system (not lease or buy electricity through power purchase agreement)
All equipment must be new, not used or refurbished
Installations must be completed by December 31, 2034

And that‘s about it! Again the requirements are reasonably broad. Just be sure any installations are done by the end of 2034 when that 22% credit will expire completely unless extended again.

How Much Could You Save with the Federal Solar Tax Credit?

Now let‘s look at some real numbers so you can understand just how substantial these savings could be!

The tax credit essentially lets you discount 30% of your total solar installation costs off your federal tax bill. So let‘s walk through some examples.

For context, the average size residential solar array these days comes in around 5 kilowatts (5000 Watts). For a system this size, you might pay an installed cost of $15,000 before incentives or discounts.

$15,000 system cost
X 0.30 (30% federal tax credit rate)
= $4,500 potential federal tax savings!

Wow, just like that you‘ve reduced the after-tax cost down to $10,500! And a 5 kW system can easily meet most household electrical needs, with excess production helping to even spin your electrical meter backwards!

Now consider a larger 8 kW solar array which might cost say $22,000 installed:

$22,000 system cost
X 0.30
= $6,600 potential federal tax savings!

So as you can see, with larger solar installations, the 30% ITC can add up to serious tax deductions.

These substantial credits will take thousands off your final out-of-pocket costs. And that‘s before additional local solar incentives which could discount your system even further!

How Do Other Incentives Work with the Federal Solar Tax Credit?

In addition to this generous federal credit, many states, cities, utilities, or even homeowners associations also offer solar incentives. These can work together with the federal ITC to maximize your potential savings!

You‘ll find solar incentives aimed at defraying installation costs offered in the form of:

State or city solar tax credits
Upfront cash rebates when you install your system
Performance-based incentives (PBIs)
Low interest solar loans or financing options

I‘ve compiled this 2022 overview map showing the wide range of statewide solar incentives available across the U.S.:

Solar incentives by state 2022

(clickable link to incentrive map in published article)

Check out what‘s offered right in your area. Just plug in your zip code to see relevant solar rebates, tax breaks, loans and more.

Now in terms of ordering, you‘ll generally want to apply any upfront rebates first to directly lower your initial solar costs. Then the 30% federal tax credit will be calculated on your net remaining expense.

For example, say your initial quote is $15,000. But you qualified for a $2,000 local cash rebate.

Initial system cost: $15,000
Less $2,000 rebate
Net expense = $13,000
30% of $13,000 = $3,900 federal tax credit

So by stacking incentives you maximize savings!

What Are the Benefits of Claiming the Solar Tax Credit?

Beyond just saving money upfront on installation costs, deciding to invest in rooftop solar panels can provide many ongoing financial and environmental benefits down the road. Here is an overview:

Financial

Lower monthly electricity bills by harnessing the sun‘s free fuel
Increased home resale value – solar homes sell for 4% more!
Protection against rising utility rates
Pay off investment in under 10 years through energy savings

Environmental

Shrink your home‘s annual carbon footprint through renewable energy
Help reduce strain on the aging electrical grid
Set an example and encourage more solar adoption

And don‘t forget, once those panels are up, they can provide free, clean energy for 25+ years with practically no maintenance required!

Over two decades, homeowners with a 5 kW solar system can expect over $15,000 in cumulative utility savings. And that assumes just moderate annual electrical rate increases of 3%.

Check out this table summarizing projected 20 year electricity bill savings by solar array size:

System Size	Est. 20 Year Savings
5 kW	$15,440
7 kW	$23,520
10 kW	$36,000

So as you can see, solar systems can pay for themselves quickly while continuing to provide free renewable power for decades to come!