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  • Writer's pictureMatthew Juarez

Does Solar really work? Is it worth it?

Are solar panels worth the investment? Expert's way in and help you decide what the cost of electrical panels will be vs. the ROI.

Types of solar systems such as, grid tie and off grid systems. As the name implies, a grid tie system means that it is still connected to the utility grid. There are string inverters, micro inverters and dc optimizers, ground mount systems and roof mount systems. It sounds complicated, but we can help you decide which system is right for you based on your electrical needs and location.

Federal Solar Tax Credit – December 2021 Update

The federal government recently extended the federal solar tax credit as part of a federal spending package passed in December 2020.

When you install a solar system in 2021 or 2022, 26% of your total project costs (including equipment, permitting and installation) can be claimed as a credit on your federal tax return.

What is the Federal Solar Tax Credit? The Solar Investment Tax Credit (commonly called the ITC) was first offered via the Energy Policy Act of 2005. You are only allowed to claim the credit if you own your system. This is why leasing a system may not be your best option . If another company leases you the system, they still own the equipment, so they get to claim the incentives. It makes more sense to take advantage of solar financing instead. You’re still on the hook for a loan, but you retain rights to the incentives that help make solar such a sound investment.

What is a tax credit?

A tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe. For example, claiming a $1,000 federal tax credit reduces your federal income taxes due by $1,000.Right now, the Solar Investment Tax Credit (ITC) is worth 26% of your total system cost. This includes the value of parts and contractor fees for the installation.

The solar tax credit steps down to 22% in 2023, and expires for residential installs in 2024. While it was originally set to expire in 2007, the current federal solar tax credit extension is set to expire in 2024.

Is it worth it?

This graph, from the Energy Information Administration (EIA), shows the increase in average residential electricity prices as a percentage between 2009 and present. During this period, US residential electricity prices rose by about 15%. The average cost of electricity per kilowatt for residential Arkansas customers is around $0.12. That's approximately $1000 dollars paid in increased rates over 10 years

Solar system costs usually range $3 to $5 per watt for the average size house, and your average size house will need a 6 to 10 Kilowatt System. Your specific power needs, location, and current electrical system will determine how big of a system you need.

The bottom line is when you install a solar power system between 2020 and 2022, the federal government rewards you with a 26% tax credit for investing in solar energy.

7,5000 Watts X $4 = 30,000

$30,000 - 26% = $22,200

How Long Will the Federal Solar Tax Credit Stay in Effect?

Under this new bill, residential, commercial, industrial, and utility-scale solar projects that begin in 2021 and 2022 will be eligible for 26% tax credit. This number will drop down to 22% for solar projects in 2023, and disappears completely for residential installs beginning in 2024.

2020 – 2022: 26%

2023: 22%

2024: 0% (10% for commercial projects)

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