The solar panel tax credit is a popular topic among homeowners. With tax season just around the corner, it is important to understand how installing solar panels will affect what you pay at tax time.
Recent changes in federal law expand the solar panel tax credit in several important ways. As such, now is a great time to enjoy tax benefits and achieve overall savings on solar!
If you are interested in going solar, give REenergizeCO a call today at (303) 227-1000 (Denver) or (970) 323-3191 (Fort Collins). Our solar energy experts serve homeowners throughout the Colorado Front Range.
What Is the Federal Solar Tax Credit?
The investment tax credit (ITC) is a federal incentive that reduces your tax burden when you install solar panels on your home. First established in 2006, the ITC has helped fuel the massive growth in residential solar energy across the country.
Read More: What Are the Tax Benefits of Installing Solar Panels?
When you install a solar panel system, you can claim the following expenses under the ITC on your taxes for the year:
- The cost of the solar panels
- Design and installation expenses
- Fees for permitting and inspection
- The cost of any additional equipment for the system, such as mounting brackets, wiring, and the inverter
- Purchase and installation of a solar storage battery
Until recently, homeowners who installed a residential solar energy system in 2022 would have gotten a 26% tax credit on these qualifying expenses. However, the passage of the Inflation Reduction Act earlier this year provides important benefits to taxpayers who go solar.
How Is the ITC Different in 2022?
The Inflation Reduction Act expands the solar panel tax credit. Starting in 2022, homeowners who install solar panels get a 30% tax credit on the costs of the system covered by the ITC.
Originally the ITC was set to expire at the end of 2023. However, the Inflation Reduction Act extends the 30% tax credit through 2032. The tax credit will be reduced to 26% in 2033, then 22% in 2034.
According to the U.S. Department of Energy, the updates to the solar panel tax credit will result in savings of “more than $7,500 for an average system.” Long-term, homeowners who install solar panels are expected to see “an additional average savings of $9,000 on their electricity bills over the life of the system.”
What Is the Colorado Solar Tax Credit?
Colorado does not offer a solar tax credit. However, there are a number of other incentives that can help Colorado homeowners save on their taxes if they choose to go solar.
First, solar panels and other types of renewable energy equipment are exempt from the state’s sales and use tax. As of 2022, the sales tax rate in Colorado is 2.9%. With the average price of a solar energy system in Colorado coming in at $17,300, the solar sales tax exemption can save you approximately $502 on the cost of components.
Second, homeowners will not incur additional property taxes when they install solar panels so long as the following conditions are met:
- You are the owner of the property
- Your property is classified as residential
- Power generated by the solar panel system is used on your property
The property tax exemption enables homeowners to increase the value of their homes by installing solar panels without having to pay the additional property taxes that are usually imposed when making other home improvements.
Read More: Does Solar Increase Home Value?
Colorado also offers a number of solar incentives not related to tax savings. Multiple utility companies in the state offer rebates when you install solar panels. Customers of Xcel Energy can take advantage of net metering (which credits your monthly electric bill if your solar panel system produces more energy than you use) and other programs.
Take Advantage of the Solar Panel Tax Credit
With the revitalization of the investment tax credit under the Inflation Reduction Act, homeowners can enjoy expanded savings on the upfront cost of a solar panel system. This, combined with lower energy bills, will allow solar panels to pay for themselves much faster.
REenergizeCO is Colorado-born and bred. Our team has completed more than 100 solar installations in Denver, Fort Collins, and throughout the Front Range. We know the local appetite for solar energy, and we provide outstanding service customized to your individual efficiency goals.
We take a comprehensive approach to your solar installation. Our team will review your energy usage and needs, design a system specifically for your home, and handle all aspects of installation and activation on your behalf.
Contact REenergizeCO today to find out what you can save with solar panels.
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