Going solar pays dividends in the long run, but many homeowners and business owners hesitate to make the switch due to the upfront cost of purchase and installation. But unless you plan to lease your solar PV system, there is no better time than the present to invest in solar. Although solar energy is becoming more and more affordable thanks to the falling cost of the equipment, those in the market for solar only have a few years to take advantage of sizeable tax credit incentives from the federal government.

The solar energy federal tax credit applies to a range of solar technologies, including solar water heating systems, solar space heat, solar thermal electric, solar thermal process heat, and photovoltaics (PV). Also known as the investment tax credit (ITC), the federal solar credit was designed to incentivize solar installation by deducting a portion of the cost from your federal income taxes. If you receive non-taxable state incentives from your local utility, the deduction would apply to the cost of installation minus the rebate or other subsidized energy financing program.

To qualify for the federal residential renewable energy tax credit, homeowners must own, not lease, their solar panels. You are eligible even if the system is on a secondary residence as long as you own the property and live there for part of the year. If you owe the federal government less than 30 percent of the cost of your system, you can claim the remaining credit the following year.

The federal solar credit was originally slated for expiration in 2007 before Congress extended the measure in late 2015. Solar adopters are now able to deduct 30 percent of the cost of their solar photovoltaic system through the end of 2019, saving the average homeowner more than $5,000 on their federal taxes. In 2020, new solar adopters can deduct only 26 percent of the cost of their system and 22 percent in 2021. After 2022, only commercial solar energy systems will be eligible for the solar tax credit, at 10 percent of the cost of the system. Homeowners will, however, be able to claim the solar tax credit as long as their system is operational before the end of 2023.

Given that solar energy is now cheaper than fossil fuels and typically pays for itself in six to eight years, the solar energy tax credit is an opportunity to save in both the long and short term. Legislation even allows you to claim the tax credit as soon as construction of your system begins, whereas in the past, owners of new solar energy systems could only claim the federal tax credit after their system was operational. In today’s solar landscape, it pays to go solar sooner rather than later—a win for the environment and your bank account.

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