People can claim the federal solar tax credit (ITC) on their federal returns. Its value is not a strict dollar amount; instead, it is a percentage of the amount spent to install a solar photovoltaic (PV) system for a residence. The goal of these tax credits for solar energy systems is to lower the total amount of money a person owes in taxes if they spent that money on a favored environmental control tactic.
As of 2021, the tax credit covers 26 percent of the system’s whole cost. Any American who chooses to go solar will have an opportunity for a federal exemption, which is likely better than anything they could get on a state level. It is important to know that this incentive is not permanent. In 2023, it is set to decrease from 26 percent to 21 percent. Currently, the credit will remain through 2023 for residential systems and 2024 for commercial ones. It would take an act of Congress to allow the tax to carry on beyond those dates.
Solar panel owners living in New Mexico, however, have more opportunities to save money through their state taxes. The NM solar tax credit is very similar to the one on the federal level. Instead of applying to your federal income taxes, it applies to your state income taxes. Also, where the federal ITC is 26 percent of the installation costs, the New Mexico solar tax credit covers $6,000 or caps at 10 percent, whichever is less.
The solar tax credits for both the state and federal level roll over. A person who owes less in taxes than the total amount of their credit will have the remainder banked until the next year. This will go on for no more than five years to make sure a person can extract the greatest value from their tax credits.