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Tax Credits are Changing (Again)

2021 Update: The 26% tax credit was extended after this blog post was originally posted. The 22% tax credit mentioned below won't go into effect until 2023.

If the Investment Tax Credit (ITC) rates are something you actively follow you may already know that at the end of the year, solar tax credits will be changing from 26% to 22%. But if you’re just starting to look at solar energy for your home or business and have honestly no idea what we mean by “ITC” or tax credits, don’t worry. We’re here to help!

The basics

When you purchase a new solar system, buyers are allowed to claim a percentage of the cost as a credit toward their federal income tax. Right now, in 2020, that percentage is 26%, but in 2021, buyers will only be able to claim 22%. Even worse, in 2022, the solar tax credit goes away completely for homeowners, though business owners who purchase solar will still be able to claim a 10% tax credit.

Since everyone has a different income situation, we recommend consulting your tax professional to get a better idea of what your personal tax liability will be. Just because you got a tax refund doesn't mean you can't take advantage of the ITC, for example. A key benefit of the ITC is that you don’t need to use it all in the first year.

For example, if you’re a homeowner who buys a $25,000 solar system in 2020, you’d be eligible for a 26% federal tax credit ($6,250). But, what if you only owe $5,000 in federal taxes? It’s all good! That remaining $1,250 in tax credits will roll over to the next year, so your investment keeps paying dividends, in addition to those lower monthly electric bills!

Time is running out

If you’re wanting to maximize your tax credits and get the most out of your solar systems, our advice is to act soon! Even if we have months left of the year, the ITC requires that your system be installed and permitted before the end of the year. With holidays, inclement weather and local permitting and utility backlogs, the end of the year gets very busy. We recommend that our homeowners sign their solar contracts by early October for the best chance at claiming their spot in line.

For business owners, different rules apply; instead of having your system fully installed, business owners can simply make milestone payments to secure solar products by the end of year cut off to qualify for their tax credits.

AES is here to help

When in doubt, give us a call at (530) 345-6980 and we can get you connected with an energy consultant that will review your specific case and help you determine the best way to maximize your energy savings. Even if you happen to miss this year’s tax credit cut off, if you sign a solar or battery storage contract with AES before the end of the year, we’ll help cover those missing tax credits with our limited time promotion. Reach out today to claim your special offer and start saving!