The Solar Energy Investment Tax Credit

This article answers the most commonly asked questions about eligibility for the Solar Investment Tax Credit (ITC).  The ITC is a federal program that will pay for 30% of your solar system, for the average homeowner this is nearly $10,000.  There might never be a better time to go solar thanks to this solar incentive program, but be aware the program begins to phase out starting in 2021.  The ITC has helped the residential and commercial solar industry become one of the fastest growing renewable energy sectors in the United States, a rare gift via the internal revenue service.

 

What is the solar investment tax credit?

The ITC is a federal tax credit that allows you to deduct 30% of the cost of solar, or other renewable energy projects, from your federal taxes.  This can include related costs such as roof work under the solar array or a home battery.  For example, if your solar system and related expenses cost $30,000, you can claim the ITC and pay $10,000 less in taxes.  Be aware that the ITC is set to expire in the year 2021.  It will reduce to 26% in the year 2020, 22% in 2021, then no longer available after 2021 for residential system owners (unless the program is renewed by the federal government).  The ITC will continue for commercial and utility-scale solar and renewable energy projects beyond the year 2021, but permanently capped at 10%.

 

What kinds of solar panels are allowable under the tax code?

To qualify, the panels must be photovoltaic (electricity producing), not water heating such as pool thermal, or any other non-electricity producing panels.  There are no restrictions on the brand, shape, size, age or any other limiting factors as long as they are photovoltaic panels.

 

What kinds of solar panel proposals are allowable under the tax code?

Both commercial and residential proposals are allowable under the tax code.  There are no limitations on who installs your system or that you received a proposal at all.  It is a good idea, however, to keep any paperwork generated by you or your solar contractor as valuable tax documentation for future reference.

 

Is it possible to get a tax credit to cover the installation of solar panels?

The ITC will not completely cover the installation of your solar panels, it is capped at 30% of the system cost (until the ITC percentage begins to reduce in 2020).  The solar investment tax credit is meant to promote renewable energy and transition to a green economy – not fully pay for systems.

 

Does the tax credit count for solar panels installed on rental properties?

Yes.  Whomever owns the solar panel system is eligible to claim the ITC, not necessarily who occupies the property.  If you are a tenant and own the system, you can claim the ITC.  If you are the property owner and own the system, you can claim the ITC, not your tenant.  This applies to leased and PPA (power purchase agreement) systems as well; if you lease or enter into a PPA, you as the homeowner are unlikely to be eligible to claim the ITC – your lease or PPA company is likely to claim it for themselves.

 

Where are some of the nearby solar panel dealers that qualify?

All solar panel installation dealers should be able to assist and answer questions about claiming the solar investment tax credit.  If they are reluctant to answer your questions, they might only offer leased or PPA systems and therefore claim the ITC for themselves.

 

How do other grants received affect the ITC amount?

For the most part, the ITC is unaffected by other incentive and grant programs.  However, you need to do your research.  For example, if you are installing a home battery along with your solar system, you (and your tax professional) will need to know that home batteries are eligible for both the ITC and SGIP (self-generation incentive program) incentives, but the 30% ITC can only be claimed on the amount remaining after the SGIP amount has been deducted.

 

How does the solar investment tax credit work?

The way the solar investment tax credit works is simple; the federal government will cover 30% of the total cost of your solar system including eligible costs such as roof work, and even a home battery (minus SGIP).  You will have a tax credit in this amount to be applied to your federal taxes for the year.  For example, if the total cost of your solar system, roofing and battery are $30,000, you will have a tax credit of $10,000.  If you owe $10,000 at the end of the year, you can use your tax credit to wipe this out.  If you have a $10,000 ITC tax credit but only owe $5,000 at the end of the year, you can use just $5,000 of your $10,000 tax credit and apply the remainder any year in the future as long as the ITC program is still running.

 

Is the federal tax credit for solar panels refundable?

The federal tax credit for solar panels is not refundable.  If you do not have the tax appetite or tax liability to use your ITC credit at the end of the year, it can be rolled over into future years for as long as the ITC program is in existence.

 

Is there a tax credit for leased solar panels?

Yes, there is a tax credit for leased solar panels, however, you will not be the one who gets to claim it.  The solar investment tax credit goes to the owner of the system – if you lease the system, naturally you are not the owner.  In some rare cases the leasing company might pass the ITC value along to the homeowner to some extent.

 

What is entailed in the process to claim credit for solar energy?

You claim your ITC when you file federal taxes at the end of the year.  Notify your tax professional about your solar system, and do not forget to include related expenses such as roof work or a home battery.  They will file your return with your ITC information.

 

How much money can one get from rebates from the solar investment tax credit?

There is no cap or limit on the size of your ITC credit – but it will never be more than 30% of the cost of the system.  Keep in mind the ITC drops from 30% to 26% in 2020, then 22% in 2021, and the program expires for residential owners after 2021.

 

How long will the solar investment tax credit last?

Until 2021 for residential system owners.  The ITC drops from 30% to 26% in 2020, then 22% in 2021, and the program expires for residential owners after 2021.

 

Are there any notable limitations to the solar investment tax credit? If so, what are they?

There are no notable limitations on the ITC itself, the ITC simply credits you 30% of the total cost of your system including related costs such as roof work or a home energy storage battery.  If you do not pay enough taxes to use your full credit by 2021, you may be limited in this way – but this scenario is highly unlikely.

 

How much do solar panels increase the value of your home?

A standard solar system of 5kW will increase the value of your home by $20,000 according to Energy Sage.  After taking into consideration the ITC, this means a roughly dollar for dollar increase in the value of your home by adding solar.

 

If you are interested in going solar, the time to do it is now.  Don’t wait for the ITC to expire, it is literally free money given to you in the form of a tax credit.  Contact us to learn everything you need to know about the solar energy investment tax credit, we’re happy to answer all your questions.