Americans are increasingly turning to rooftop solar panels to save money on their energy bills, and over the next decade federal tax credits may help reduce the cost of installing them.
Solar panel tax breaks are nothing new, but the Inflation Reduction Act passed last year broadened and expanded them as part of government efforts to reduce greenhouse gases that contribute to climate change.
By the end of 2032, if you buy and install a solar system in your home, you’ll be eligible for a federal tax credit equal to 30 percent of the cost, including the panels, associated equipment, wiring, installation, permits, and fees. The credit shrinks to 26 percent in 2033 and 22 percent in 2034. (The solar credit is one of several clean-energy credits for homes included in the 2022 law.)
“It’s a good time to start thinking about expanding solar energy,” said Becca Jones-Albertus, director of the Department of Energy’s Solar Energy Technologies Office, which promotes the development and deployment of solar technology.
Solar panels convert sunlight into electrical energy. According to the Solar Energy Industries Association, more than 702,000 residential units were installed last year, more than double the 2018 total. The group estimates that by 2030, 15 percent of homes in the United States will have solar panel systems.
The solar tax credit reduces your tax bill dollar for dollar; If you do not owe federal tax, you will not receive a credit as a refund. However, you can carry unused credits over to future tax years, said April Walker, senior manager of tax practice and ethics at the American Institute of Certified Public Accountants.
The typical size of residential solar arrays is nine kilowatts, said Vikram Aggarwal, managing director of EnergySage, an online marketplace that connects consumers with solar companies. Based on prices reported by the National Renewable Energy Laboratory, the bill to install such a system would be around $27,000, and a credit would help you recoup $8,100.
Larger systems can be significantly more expensive, but there is no upper limit on creditworthiness. On average, lower electricity bills and tax credits and incentives will help homeowners recoup the cost of the system in about eight years, Mr Aggarwal said.
“Your actual savings will depend on factors such as electricity use, the number of panels installed, your home’s orientation (south-facing roofs get the most sun in the northern hemisphere), and how shady your lot is,” said Josh Kossman, Sr Sales Director at SunPower, a nationwide solar installer. SunPower has an online calculator that you can use to estimate your potential savings.
Some states offer their own tax incentives, and utility companies may offer rebates for installing solar panels. In some cases, rebates can affect the amount of federal credit. So consult a tax professional for help calculating your potential benefit, Ms Walker said.
If you’re due for a new roof, it may make sense to replace it before investing in solar energy, since removing and reinstalling the panels can be expensive, said Dr. Jones-Albertus. Some solar companies also build roofs or work closely with roofing companies, so you might save if you let them do it at the same time, she said.
Some solar companies offer the option of leasing the system rather than buying it, but in this case you don’t own it – so you’re not entitled to the tax credit, Ms Walker said.
Here are some questions and answers about solar at home:
How do I find a reliable solar installer?
The Solar Energy Industries Association recommends finding a contractor who is certified by a reputable group such as the North American Board of Certified Energy Practitioners. Obtain bids from at least three companies, preferably five, including local, regional and national operators, Mr Aggarwal recommended. Ask who will do the work; Some use in-house installers while others hire external workers. The association offers a guide to guide consumers through the process. Often the first assessment can be done remotely using satellite imagery of your home.
Like any home improvement project, solar systems could attract disreputable contractors, said Melanie McGovern, a spokeswoman for the International Association of Better Business Bureaus. A reputable installer will answer your questions, provide a detailed estimate and give you time to think about it. Ask for references and research the company’s reputation online. Carry on, if the representative is urging you to sign a contract straight away or saying a price is for that day only, Ms McGovern said: “That’s a red flag.”
Can I get the federal tax credit if I install solar panels in my vacation home?
Perhaps. Solar panels installed in a second home could be eligible as long as you live there part-time and don’t rent it out to others, Ms Walker said.
If I install solar panels, will I still need power from my utility?
In most cases yes. Solar panels rely on the sun, so your system still needs to be connected to the grid to get power at night and on cloudy days. Many energy suppliers offer “net metering”, which allows you to feed additional electricity into the grid and receive a credit for future bills.
But some states, like California, are reducing the value of credits given and are urging consumers to consider solar batteries for electricity storage instead, Mr Aggarwal said. According to the Internal Revenue Service, solar batteries can add thousands of dollars to your installation costs, but are eligible for the federal tax credit as long as they can store at least three kilowatt hours of electricity.
What happens if my house is not suitable for solar systems?
Consider subscribing to a community solar project, where you receive a credit on your electricity bill for the energy generated by part of the solar field or “farm”. Forty-one states and the District of Columbia have at least one community project. According to EnergySage, subscribers save an average of between 5 and 15 percent per year and can cancel at any time.