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How does the Federal Solar Tax Credit work?

By now you probably have some idea of what the Federal Solar Tax Credit is; it allows you to claim a whopping 30% off your solar panel purchase. But if you’ve stumbled upon this post, we’re guessing you want to know if you’re eligible and find out exactly how it works.

We’re by no means tax experts; we’re solar experts, so we advise you seek help from your tax adviser before proceeding further. This just serves as a great stepping block to give you a concise overview.

Please note: The Federal Solar Tax Credit is due to expire at the end of 2016. A credit of 30% is a massive saving and not one to shy away from. So if you want to take advantage of this Government support, you’ll need to get in there quick.

What is the tax credit?

The tax credit will compensate you 30% of your solar panel purchase. So say you pay $25,000 for your system, you will get $7,500 off. This amount will then go towards reducing your tax bill that year when you file your tax return.

If you owe $15,000 in taxes for that year, you would

only pay $7,500, and if you only owe $2,500, that remaining $5,000 would roll over to the following tax year. This would then contribute to the reduced amount you would pay for 2016.

Who is eligible?

Eligible – The tax credit is for homeowners who buy their system.

Eligible – You need to owe federal taxes for the tax credit to apply.

Not eligible – If you do not have any tax liability. The credit will simply reduce the amount of tax you owe, so if you don’t owe any tax, this credit will not be able to help you.

Not eligible – If you’re thinking of leasing your panels or entering a PPA contract, credit does not apply and the solar company will receive the savings. This is because you will not actually own the system; you are simply making savings on your electricity bill each year, rather than making an investment.

Not eligible – If you’re renting and do not own your home. It is up to the owner of the property to install the panels, and an agreement will then be made with them. So again, you will not be eligible.

Category: Taxes

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