What Are the New Mexico Solar Tax Credits?
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Going solar has never been more affordable. Even ten years ago, only well-off American homeowners could afford to go solar. Now, however, with advances in solar technology manufacturing and government subsidies, going solar is within reach of many homeowners across the country. Among the most important of these subsidies are the tax credits that are now available. Most Americans will owe income taxes, both state and federal.
These taxes can make up a big part of your expenses — even if you don’t see them at the time, since many of us have them drawn directly from our paychecks. Income tax credits, therefore, can save you thousands of dollars. We’ll take a look at the main income tax credits that New Mexico solar homeowners can qualify for. We’ll also look at a couple of other tax exemptions that, while not worth as much as the income tax credits, can still save you a tidy sum.
The Most Important Solar Tax Credit Is Federal
The federal solar tax credit (investment tax credit, or ITC) is the most important incentive for any homeowner. It’s available to all Americans who choose to go solar and, usually, will get you more savings than state-level tax credits and exemptions.
What Is the Federal Solar Tax Credit?
The federal solar tax credit is a tax credit worth a certain percentage of the cost of your solar installation. As of 2021, the ITC is worth 26 percent of the cost of your system. However, this percentage is set to decrease in 2023, to 21 percent, after which it will disappear completely for residential solar. This includes all of the main solar equipment, like your panels, racking system, and inverter. It even covers battery backup, assuming you charge it purely with solar. It also includes most of the soft costs, like equipment handling and site prep. It’s because of all the various factors that it covers that it is worth so much money. And, because it is worth so much money, we do not recommend people who don’t owe federal income taxes to go solar. Without the savings of the ITC, solar can become much more expensive.
New Mexico Has Its Own Solar Tax Credit
Once you’ve taken care of the federal tax credit, the next step for New Mexican solar homeowners is to look into the state-level tax credit. The New Mexico state solar tax credit is very similar to the federal solar tax credit in that it applies to your income taxes — your state income taxes, rather than your federal income taxes. While you will likely owe more income taxes to the federal government than New Mexico, your state-level income taxes can still represent a significant amount of money.
What Is the New Mexico Solar Tax Credit?
The New Mexico solar tax credit is a bit more restrained than the federal tax credit. While the federal ITC is worth 26 percent of the cost of your installation, the New Mexico solar tax credit caps out at 10 percent of the cost, or $6,000, whichever is less.
For example, if you buy a huge solar installation that comes out to $80,000, your tax credit will stop at the $6,000 limit. If you purchase a typical solar installation, you’ll be looking at 10 percent of the system, likely around $1,000 to $1,500. This is a sizable discount on your solar array.
Both the state and federal solar tax credits rollover. If you find yourself owing less in taxes than the amount of your credit, the remainder will be banked until next year. This will continue for up to five years to ensure that you can extract the maximum amount of value from your tax credits.
The two-income tax credits will make up the bulk of your solar savings, so it’s important that New Mexico solar homeowners apply for them.
Other Tax Credits and Exemptions For Going Solar in New Mexico
While the two income tax credits are the most important, there are still several other ways to save on taxes while going solar. When making a big investment, such as installing solar panels, every way to save is important. We’ll cover the other main solar incentives here so that you can be armed with the knowledge you need to go solar.
Property Tax Exemptions for Solar Homes
While it isn’t a guarantee, solar panels have been shown to generally increase the value of a home. Studies say that solar panels can add around four percent to the value of your home — which translates to thousands of dollars. While this is good news for those who are interested in potentially selling their home, an increase in home value leads to an increase in property taxes.
Luckily for solar homeowners, your panels (and other solar equipment) are exempted. According to a state law passed in 2010, solar installations are fully excluded from the total value of your home for as long as you live there. This stops your property taxes from rising while you enjoy the benefits of your solar PV system, but it doesn’t get in the way of using your panels to increase your home’s value for eventual sale. Once the home is sold, however, the solar installation will then begin counting towards the property tax.
Sales Tax Exemptions for Solar Equipment and Services
Another exemption that solar-curious New Mexico homeowners should be aware of is the sales tax exemption. This applies at the time of sale and needs to be calculated before the purchase. Because solar panels can cost a fair amount of money, along with things like solar racking, inverters and batteries, the sales tax exemption is vital for any homeowner.
This tax can ultimately save hundreds of dollars and, potentially, even more than $1,000. This depends on how expensive the panels you purchase are and whether you also purchase battery backup, like the Tesla Powerwall, to go with it. Besides the income tax exemptions, this is the tax incentive that will likely save you the most money.
The Sustainable Building Tax Credit for Potential Home Builders
Are you interested in building a new house? If so, there are countless reasons why you should be building a more sustainable, efficient, and environmentally-friendly home. The New Mexico state legislature agreed, which is why they updated the SBTC this year. Originally instituted in 2015, this program was expanded by the New Mexico state legislature to last longer, cover more categories, and have larger incentives.
Let’s take a closer look at this credit.
The Specifics of the New Mexico Sustainable Building Tax Credit
The updated credit goes into effect in April of 2023, though projects which are completed before then can still be counted under the previous credit. Additionally, there are some provisions of the bill which went into effect in June of 2021. The credit, while mainly focused on new buildings, also applies to large-scale renovations.
Firstly, to qualify for this credit, your home must be certified by either the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) system or by Build Green New Mexico. They have a list of requirements that the state of New Mexico has deemed sufficient for determining whether a building is sustainable.
For renovating, products that help the home conserve energy can qualify for additional tax credits. While most homeowners who are interested in solar don’t live in low-income housing, energy-efficient renovation to these types of homes qualifies for extra incentives.
Once your home has been certified, you have to submit the SBTC application form, which can be found on the EMNRD site linked above. The Taxation and Revenue Department of New Mexico also provides additional information.
Making New Mexico Tax Credits and Exemptions Work For You
The final takeaway from this list of exemptions and credits is simple — be prepared. A lot of these incentives require some legwork before the actual purchase. If you don’t do that ahead of time, you can potentially be disqualified from the credits and exemptions. To ensure that you get the most value out of your solar PV system, you should be preparing ahead of time and gathering all the necessary paperwork and information prior to the purchase.
We hope that you found this information useful. New Mexico is one of the best places to go solar in the United States for a variety of reasons. Don’t let these savings pass you by!