Save More With Envalence
While there are a lot of reasons to adopt solar energy, the #1 reason for most people is to save money. Solar has gotten less expensive over the last decade, with prices plummeting by more than 70% due to wider adoption and the volume of manufacturers entering the market.
When you combine the declining cost of solar with ever-rising energy prices, property owners can see substantial savings from independent energy generation.
Residential Solar Tax Credits & Savings
Whenever solar and savings are spoken in the same sentence, many people think of federal tax credits such as the Investment Tax Credit (ITC). But there are other financial incentives that make investing in solar more attractive still. Our team can help you determine which tax benefits, rebates, grants, and loan programs apply to your specific situation.
For residential clients, the solar Investment Tax Credit is fairly simple: You’ll receive a federal income tax credit equal to 30% of the total investment.
So, what is a tax credit? And what is your total investment? Let’s look at a hypothetical scenario.
How Tax Credits Work
Imagine your family makes $100,000 per year and your annual tax liability is $25,000. Any tax credit will be applied to your tax liability for a given year.
Now assume you are purchasing a $16,000 solar energy and battery storage system.
The available tax credit of 30% applies to the purchase price of the system and accessories. So in this case $4,800 ($16,000 x 30%) will be subtracted from your tax bill. Instead of owing $25,000 in taxes, you’re down to $20,200.
So in your very first year, you’ll make $4,800 off of your $16,000 investment. Sounds great, right?
Hypothetical Solar System Cost: $16,000
Tax Credit: 30%
Total Investment Explained
With the passage of the Inflation Reduction Act, the rules around solar ITC’s have changed. Total investment in your system can include: The cost of the panels, inverters, switches, wiring, and mounting hardware, battery storage systems, taxes, and labor cost to install the system.
In other words, everything you need to install a system is eligible for the 30% tax credit.
To estimate your tax liability, look at last year’s tax return to see the total tax owed (row 24 on your 2021 Form 1040).
One great thing about tax credits: If your tax credit is more than the amount you owe in taxes, the left-over amount gets rolled over to the following years.
Most utilities support residential solar installations and may offer a rebate paid directly to you. Duke Energy, North Carolina’s largest utility, offers a generous rebate of up to $4,000 based on the rated output of the system.
Navigating the rebate process is our cup of tea! Let us help you maximize your return from a solar energy installation.
Many have heard the term; few understand the process. Once your solar system is connected to your utility’s grid, a bidirectional meter will record what energy you import to your home and what energy you export to the grid.
Any excess energy generation exported to the grid is credited to you. Depending on your utility provider, this can mean a substantial offset in your energy bills. Contact us to find out more about which utility providers offer net metering.
Solar Tax Benefits for Businesses
There are even more solar incentives available for commercial customers than for residential customers.
Commercial clients are eligible for bonus tax credits based upon the amount of domestically sourced materials, the geographic location, and demographics of the region. This can equal as much as a 70% tax credit based on the purchase price of the system.
Alternatively, commercial clients can opt to receive the Production Tax Credit, which provides a certain credit amount per kilowatt hour (kWh) produced.
In addition to these credits, businesses can also take advantage of the Modified Accelerated Cost Recovery System (MACRS) with bonus depreciation in year 1 for solar and battery installation costs. This section of the tax code allows businesses to depreciate a percentage of the installation minus ½ of the federal tax credit. Starting January 1, 2023, this bonus depreciation is reduced by 20%. The bonus depreciation will continue to reduce by 20% per year until expiration.