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What is the Federal Solar Tax Credit?

Solar power for residential homes has grown by an astounding 1600% due in large part to a massive tax incentive from the Federal Government.

This Tax credit known as the Solar Power Residential Renewable Energy Tax Credit  (AKA the Federal Solar Tax Credit or ITC for short) offers a massive 30% discount to homeowners looking to go green.

But the big question remains:

What is The Federal Solar Tax Credit And What Does It Mean For You?

Historically, the biggest barrier most homeowners face with adding solar power to their homes has been the significant upfront cost. When deciding to add solar power to your home. The initial bottom line cost can often leave a bit of shellshock (A fact that most utility companies have been more than happy to enjoy and exploit). But the Federal Solar Tax Credit can shave off 30% of the total installation cost of a solar power array and with the falling price and rising efficiency of today’s solar panels, adding solar to your home has never been more simple.

See how much the Solar Tax Incentive could save you (the number might just surprise you)

Quick facts about the federal solar tax credit.

  • The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties.
  • The residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 – a compound annual growth rate of 76 percent. (See more solar industry data.)

A Brief History of the Federal Solar Tax Credit:

In an effort to help reduce pollution and increase the use of renewable energy sources the Federal Solar Tax Credit (ITC) was signed in 2005 and began service in 2006 and has since had several extensions and modifications with the current version being enacted in 2015.

The basis of the Solar Tax Credit is as follows:

A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the “placed in service” date is the date of occupancy by the homeowner.

Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year.

This tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. This tax credit is equal to 30 percent of the basis that is invested in eligible property which has commenced construction through 2019.

Source: SEIA

Below are the items that qualify for the solar tax credit:

Solar-electric property:

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property:

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
  • At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.
  • The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
  • The home served by the system does not have to be the taxpayer’s principal residence.
Source: DSIRE

How do I claim my Federal Solar Tax Credit?

Claiming your federal solar tax credit couldn’t be easier.  It’s a simple 2-page form that you fill out along with your regular end of the year tax forms.

We have included a link to the form required to make full use of your Solar Tax Credit as well as instructions from the IRS for filling out said form.

Please keep in mind that the team at Solar Analyzer specialize in bringing affordable home solar to America. We are not tax experts- if you have any questions or concerns please consult your tax preparation service or your accountant.

To claim the 30% solar tax credit you simply complete a Form 5695 and add the results of this to your main tax return.

Is there a maximum dollar amount that can be claimed for the solar tax credit?

At its inception, there was a $2,000 cap on the tax credit that has been removed as of 2008.  This is great news for any homeowner looking to go solar as now you can claim the credit regardless of if you install a 1 kWh system or a 30kWh system.  But it won’t last forever…. unfortunately the timer to claim this credit has already started.

How long does the 30% federal solar tax credit last?

The federal solar tax credit has been in effect for over a decade and sadly, its time is running out.  Unless action is taken in Washington the full 30% credit will begin to disappear as of 12/31/2019.  The solar tax credit then begins what is known as a step-down policy, where the discount will gradually disappear over the next few years.

In relation to solar electricity the following rates of tax credit apply:

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • 0% after the beginning of 2023, the residential credit will drop to zero unless it is extended by Washington
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • The home served by the system does not have to be the taxpayer’s principal residence. (meaning you can install solar power on your vacation home, rental property, or cabin getaway)

What if I don’t owe enough in taxes at the end of the year to claim my solar tax credit?

So you don’t owe more than the 30% you intend to claim on your taxes at the end of the year?  Congratulations!  The good news is you don’t have to miss out on a dime of your tax credit!

The federal tax credit is in fact, a credit and not a rebate (meaning you must have enough tax liability to get full use of the credit).

But the great news for homeowners like yourself is that if the federal solar tax credit exceeds your tax liability in the year of installation, the excess amount may be carried forward to the succeeding taxable year.

The time has never been more right to add solar power to your home.  But smart shoppers need to be aware that the solar tax credit is on a timer that is coming very close to its end… If you want to take advantage of this tax credit you need to act quickly.

Interested in going solar find out how much the Federal Solar Tax Credit Can Save you with Solar Analyzer

In addition to the federal solar tax credit, you may also be eligible for additional local and State incentives to further reduce the cost of adding solar power to your home.

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