Making Sense of Solar Electricity for Homes and Federal Tax Incentives

The federal tax incentive for solar electricity in the home does not provide enough cost savings to cover the entire expense of the solution. On the other hand, it does provide a tax credit for a significant percentage of the cost, making solar more affordable than ever before.

The federal investment tax credit provided a 30% tax credit on your income taxes. To be very clear, as this is misunderstood by many, this federal incentive is NOT a tax deduction, but a dollar for dollar tax CREDIT on the homeowner’s income taxes for the fiscal year in which the solar power system was installed. The tax credit is based on 30% of the initial solar power system cost..

For example, if the initial system cost was thirty thousand dollars, then you could expect to receive 30% or ten thousand dollars as a credit to your income taxes upon filing your tax return for the fiscal year that the system was installed. Let’s expand a little further. If you were one of the lucky ones that will be receiving a check from Uncle Sam, let say in the amount of one thousand dollars, then based on the example above, you would increase the value of your tax return from one thousand dollars to eleven thousand dollars. Let’s look at what the numbers will look like in the undesirable event that you owe eleven thousand dollars to Uncle Sam. If this was the case, then you would deduct the ten thousand dollar investment tax credit for installing solar, resulting in you owing only one thousand dollars to the government.

What types of systems does this incentive cover? Are there limitations to the program? The 30% tax incentive applies only to solar electric solutions, such as solar arrays, and does not apply to wind generators or geothermal solutions. This tax credit is slated to expire in 2016; after that time, it is possible the tax incentive will no longer be available to consumers.

For homeowners interested in attaining solar electricity for their homes, federal tax incentives can be a dramatic way to recoup the cost of installation solar power installation. These incentives can offer much in the way of tax credit benefits, the true benefit of a solar array is in the long term use. By reducing your dependency on the local power grid, you can become increasingly self-sufficient. This means that you can enjoy the electricity that you need, without having to pay an escalating monthly bill to do so.