If you’re looking to add solar panels to your home, freelancing office, or rental property you own, the good news is that you can offset the cost with the Federal Energy Investment Credit.
We discussed in detail in our previous post.
To claim the energy investment credit for solar panels and other qualified projects, you can use Form 3468 investment credit.
As a result of the 2022 Inflation Reduction Act, the ITC was set at 30% and extended for at least another decade.
So you may want to consider qualifying projects related to your business in the 2023 and 2024 tax years. Beginning in 2025.
There are more criteria you must meet in order to receive the full 30% tax credit.
After 2025, the continuation of ITCs for commercial projects such as solar panel systems and other energy efficiency initiatives will depend on the solar and electric sectors meeting the US Treasury’s goals of achieving a 75 percent reduction in emissions below 2022 levels.
That you can now depreciate the entire cost of the solar system in the first year instead of spreading it over several years means that the payback period is shortened and you reduce your taxes in one tax year, which can be helpful in reducing your tax liabilities overall.
Note that to qualify for the Energy Investment Tax Credit alone, you must begin construction of your solar PV system on or before December 31, 2019, and at least 5% of eligible project costs must be incurred before you can claim any credit. or bonus depreciation.
But your tax savings don’t have to stop at these commercial and rental property tax breaks even if your primary residence solar panel project doesn’t qualify.
You can also claim 100% bonus depreciation on all solar panel installations and other qualifying projects. Keep in mind that different states have different tax incentives for solar panels.
However, some states such as California offer significantly better incentives than others.
You must deduct the amount of the tax credit you received from the cost when you claim the solar panels as an asset for bonus depreciation.
Here’s a simple example of how to calculate bonus depreciation on all solar panels, assuming you’ve installed a solar power system that costs $100,000 in direct and indirect costs.
You must first claim and deduct the 30% solar tax credit (check here for the amount based on the year you claim).
The IRS halves the basis of this tax credit, leaving you with (30% ÷ 2) 15%. As a result, you can write off the $100,000 cost by 15%, reducing it to $85,000.
You can then claim a 100% bonus in the first year of installing the solar system.
For example, if your state offers a 5% tax credit. You can apply this to the base cost of $85,000 and multiply it by the federal and state government rates to see how much you can save