© iStockphoto.com / SwellphotographyThis solar panel tax credit is refered to by many names. You may have seen it described as Federal Solar Tax Credit, the Residential Renewable Energy Tax Credit, or - most commonly - the Solar Investment Tax Credit (ITC). No matter what you call it - it's a pretty good deal. At least until the end of 2016. That's the date when the solar energy tax credits are set to expire. And while there is always the possibility of a further extension it is by no means guaranteed.
What Exactly is a Tax Credit?
A solar energy tax credit is different from a deduction. In fact, it's better than a deduction, which is determined by your income and tax bracket. A credit is fully applied to the amount of taxes owed. So, if your tax liability is $12,000 and your tax credit is $4,000 then the full amount of the solar tax credit is subtracted, thus leaving you with a tax bill of $8,000.
Additionally, there might be even more incentives available at the state, county, or municipality level that apply after all federal benefits are subtracted. Check your area's government websites for more information.
How Do I Qualify for a Solar Tax Credit?
Most importantly, if you want to be able to get the solar tax credit you must owe federal taxes, since you need to have a tax liability first in order to reduce it. The solar tax credits will, however, roll over into the next year. So if your tax liability in the first year was not high enough to apply all of your solar tax credit, you may spread it out in order to gain the full benefit.
The solar energy tax credit applies to solar energy systems that are installed in existing homes, new constructions, and even second residences. It does not apply if you are renting. The credit is available for all solar system installations between 2009 and 2016. If your system was installed before 2009 you can still claim the old $2000 credit.
If you decide to lease your system, you will not receive the solar panel tax credit. Instead it will go to the company you signed the lease agreement with, since you're not paying for the equipment yourself. Some companies may pass the savings on to you in some form, for example, they might offer you free installation.