Adding Solar Panels? Don't Miss Out on These Tax Breaks

It's raining tax breaks, and Uncle Sam is handing out the biggest of them all.

Good news: It's never been a better time to buy solar panels. Seriously. According to the Solar Energy Industries Association, the cost of solar panels has plummeted by over 60% over the last 10 years. Better yet, governments at the federal and state level are tossing out tax breaks like it's Christmas morning for solar users.

If you're adding solar panels to your home, check out the following tax breaks so you don't miss out on big savings. You may be eligible to get thousands of dollars back.

Federal tax breaks

If you're considering going solar, check whether you're eligible for the federal solar tax credit. It could save you thousands of dollars on your installation.

The federal solar tax credit, also known as the Investment Tax Credit (ITC), is a 30% tax credit for installed solar systems on homes. Folks who install solar panels in 2034 only get a 22% tax credit, and the tax break expires at the end of that year.

Considering the average price of solar panel installation is $3,500 to $16,000, taking advantage of the federal solar tax credit is worth doing.

Do I qualify?

Don't fret -- you're not too late to the game. You're eligible for the federal tax credit if you install solar panels this year or the next. A couple of nit-picky details you might want to be aware of:

• ITC only applies to solar panels installed on homes
• ITC only applies to solar panels installed in the U.S.
• ITC only applies to primary or secondary homes

To sum up, if you live in the United States and are installing home solar panels, you probably qualify.

How do I receive money?

You receive the money via a tax credit, a dollar-for-dollar reduction in the taxes you owe. For example, if you owe $1,000 in taxes and have a $1,000 tax credit, your tax bill will be reduced to $0.

To claim the credit, you've got to file IRS Form 5695 as part of your tax return. The best free tax software can help you file taxes quickly and snag those snazzy tax breaks.

You can carry any unused tax credit amount to the next tax year.

State tax breaks

States like California and Texas offer loads of extra goodies to homeowners who install solar panels. Tax breaks, rebates, and grants are all on the table. You can easily explore your state energy incentives at the Database of State Incentives for Renewables & Efficiency.

Other savings

Other savings methods include utility company rebates, renewable energy certificates, and state rebates. Check the above database for local opportunities to save more on your solar panels.

Note: Other solar incentives can affect your federal and state tax credits. For example, receiving a rebate from your electric utility may reduce your solar tax credit. That said, the benefits of utility incentives and tax benefits are both worth pursuing.

You may also consider taking out a loan to reduce your upfront payment. If you're interested in solar panel financing, you have options:

• Personal loans
• Government or home equity loans
• Solar leasing

Solar leasing reduces the down payment of solar panel installation, but there are two notable downsides: you don't own the solar panels and therefore don't qualify for tax breaks.

With all the solar panel incentives available, there's never been a better time to switch to renewable energy. So, if you're thinking about switching to solar, check out all the potential tax breaks you may be eligible for first. There's no rush -- federal tax breaks will be around for a while.