You May Not Know This. The Solar Investment Tax Credit (ITC) Is Alive and Well.
January 7, 2018
You may have heard of the Investment Tax Credit (ITC) that’s being offered from the federal government. It’s a 30% dollar-for-dollar reduction in federal income tax for those who purchase and install a solar system on their home or business. You may have also heard that it’s gone away. But that’s not true.
You can still receive up to the full 30% if you go solar now through 2019. The credit allows you to deduct 30% of the cost of your entire solar system on your taxes until 2019, after which it drops down to 26% in 2020 and 22% in 2021. After 2023, the investment tax credit comes to an end for residential solar systems and remains at 10% for commercial systems.
How Does the Investment Tax Credit Work?
The ITC is a reduction in federal income tax for individuals who purchase and install a solar system on their home (businesses can qualify too). The amount credited is equal to 30% of the purchase price of your entire solar system. It’s not a rebate which helps you pay for your system directly. And it’s not a tax deduction which reduces your total income and thereby decreases your tax burden. It’s a credit against your tax liability — dollars you don’t pay the IRS. However, you do not receive a tax refund if the amount of the solar credit is larger than the amount of the taxes you owe.
It works like this: Let's say you purchase a system for $30,000. Take the net cost, which is the price you paid less any other credits or rebates, and multiply that by 30%. $30,000 x 0.30 = $9000. That $9000 is a pretty impressive reduction in the taxes you would otherwise owe.
Who Can Take Advantage of the Investment Tax Credit?
Any homeowner who is a U.S. taxpayer and purchases a solar system through cash, loan or line of credit is eligible for the ITC. However, if you choose to fund your system using a solar lease or Power Purchase Agreement, you aren’t eligible. In this case, the tax credit belongs to the third-party owner of the system who uses it to lower your monthly payments.
And remember, this is a tax credit so you must have a tax liability to benefit. And you must owe taxes at least equal to the amount of tax credit you are claiming. But good news – if you don’t have enough tax liability in the current financial year, you can roll the remaining credit amount over to another year while the ITC is still applicable.
One other condition – you can only use the ITC on the solar system installed on your primary residence. Other homes you may own don’t qualify.
And as with any tax situation about which you need clarification, a call to your tax professional should be your first move.
For more information, visit us at bakerhomeenergy.com or give us a call at 877.578.8080.