Deduct Solar Panels on my Main Residence?

Can I deduct the cost of the solar panels I just installed on my home?

That’s a common question, particularly as folks grapple with the expenses tied to purchasing and installing a solar panel system for their residences. The good news? Numerous tax incentives await for solar panels, whether they grace a home or boost a business. Let’s dive into a couple of illustrative cases. 

Consider Larry, who, exasperated by soaring electric bills, sought out a more economical energy solution for his Arizona home. In 2020, he invested $20,000 into a solar electric system installation. This setup harnessed solar energy to power his home in the United States, making him eligible for a valuable tax credit. Thanks to the Residential Energy Efficient Property Credit, Larry can claim a stunning 26 percent of his qualified solar electric expenses, translating to a substantial $5,200. This credit applies to his taxes for 2020. Should Larry’s original tax obligation fall short of $5,200, he can effectively eliminate his 2020 tax bill entirely and carry forward any remaining credit to offset his 2021 taxes. 

It’s noteworthy that for this particular credit, a “home” spans various options—be it a traditional house, a houseboat, a mobile home, a cooperative apartment, or even a condominium. 

Meanwhile, Larry’s cousin Mike, intrigued by Larry’s impressive solar setup, envisioned potential savings on his dairy farm in Oregon. After thorough consideration, he decided to implement a solar system to slash the electrical expenses for his milking shed. However, since his installation served a business purpose rather than a residential one, Mike couldn’t tap into the same credit as Larry. Instead, he could benefit from the Investment Credit, tailored for businesses, allowing him to claim 26 percent of his solar energy property installation costs for 2020. Additionally, Mike could leverage depreciation, enabling him to deduct nearly the entire expense of his 2020 solar investment over the subsequent five years. Alternatively, he might opt for bonus depreciation, allowing him to take the whole deduction on his 2020 tax return. 

Thus, while the initial investment in a solar panel system can be quite hefty, the tax incentives provide a glimmer of hope for those ready to embrace a brighter, sustainable energy future! 

If you are still unsure about your situation and want help, you can click this link to set an appointment to speak with an expert at Lisa Brugman, EA & Associates.