How The Solar Tax Credit Works

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The use of solar power has increased in the past decade. Consumers have become more environmentally conscious and the costs of going solar have gone down thanks to government incentives like the 2019 solar tax credit.

Solar power doesn’t pollute, rely on gas or coal, but can be much more expensive than the less environmentally-friendly counterparts. However, it can be much more expensive, which is why the EPA and Department of Energy run the Energy Star program and offer these tax credits for using alternative energy.

This tax credit is good for up to 30% of the total cost of the solar power installation.The credit is available through the end of 2019. Unfortunately, the percentage drops each year and then stops at the end of 2021.

The credit can be applied towards solar-powered equipment that generate electricity or heat water and is only available for improvements you make to your residences.

As a credit, you take the amount directly off your tax payment, rather than as a deduction from your taxable income. Other than the cost of the system, there’s no limit to the dollar amount of the credit.

The credit can also be applied to rental property, unless you also live in the house for a part of the year. Vacation homes and rentals will require a reduction in the credit for the time you are not living there. For example, If you live at your vacation home for three months a year, for instance, you can only claim 25% of the credit: If the system cost $10,000, the 30% credit would be $3,000, and you could claim a quarter of that, or $750.

To file the claim, the IRS Form 5695 must be filed as part of your return. The credit amount is calculated on the form and then entered on your 1040 form.

If you end up with a bigger credit than you have income tax due—a $3,000 credit on a $2,500 tax bill, for instance—you can’t use the credit to get money back from the IRS. Instead, generally, you can carry the credit over to the following tax year. It is not yet clear whether you can carry unused credits to years after the solar credit expires.

Source: AOL