A tax credit is a dollar-for-dollar, bottom-line reduction on your income taxes. Under the U.S. Solar Investment Tax Credit (ITC) program, if you purchase and install a solar energy system in 2022, you can receive a federal income tax credit of 26%. The credit will be 22% for systems installed in 2023.

Let’s say you spend $15,000 on a solar energy system. Your tax credit would be $3,900. When you file your annual tax return, if taxes due are $14,000—that burden drops to $10,100.

If you’ve prepaid estimated taxes, $3,900 will be issued as a refund. Tax credits can be carried forward. When  total taxes are lower than the credit amount, the unused credit can be taken in the following year(s).

Tax credits are also available for completing energy improvements to your home. Qualified improvements include insulation, windows, skylights, exterior doors, and certain types of roofs. Each component must meet specific energy standards, and the IRS provides a calculation worksheet to determine the tax credit.

It’s all explained in Live in a Home that Pays You Back