2023 Federal Tax Credit Solar Incentive
Solar Tax Credit Explained
The Investment Tax Credit (ITC), also known as the Residential Clean Energy Credit, or Federal Solar Tax Credit, is a federal incentive designed to increase renewable energy production and help more homeowners install solar. This incentive was set to expire after 2024, but through the recently passed Inflation Reduction Act of 2022, this incentive was not only extended but increased from 26% to 30%. Now more than ever is the right time to go solar!
Tax Credits Provide Maximum Savings
Tax credits are often confused with tax deductions or exemptions, but it’s important to understand the difference, as credits provide substantially more savings.
Credits
When you claim a tax credit, it reduces the total taxes you owe, dollar for dollar. For example, let’s say you owe $10,000 in taxes and qualify for a $4,500 tax credit. That means the taxes you owe are reduced to $5,500 with the claimed credit.
- $4,500 tax credit = $4,500 savings
Deductions and Exemptions
Tax deductions and exemptions only reduce your taxable income, which means you save on your taxes, but not as much as you would with a tax credit. If you had a $4,500 tax deduction, it would reduce your taxable income by $4,500,which would save only you $1,080 in taxes.
- $4,500 tax deduction = $1,080 savings (assuming a 24% tax rate)
