A Massive Incentive for Solar Enthusiasts
If you’re looking for an incentive to go solar, then look no further. The federal Investment Tax Credit (ITC) is valued at 30% of the installation cost of your solar power system. This includes the cost of the panels and components, labor, and some energy storage devices (batteries). Since its inception almost a decade ago, the federal solar tax credit has grown the number of solar installations by 1,600% in the U.S. and has been the primary driving force behind the solar industry’s recent momentum.
The great thing about the ITC is that you can pair it with other qualifying rebates to maximize your savings and greatly improve your return on investment (ROI). Recently Congress extended the solar tax credit through 2021. It will remain at the full 30% value through December 31, 2019, step down to 26% in 2020, and then it will drop to 22% in 2021.
Am I Eligible to Claim the Solar Tax Credit?
You must own the system outright (You cannot claim if you are leasing or using a PPA)
The panels must be new and unused (no refurbished panels or second-hand solar please)
You cannot apply the solar tax credit for solar powered pool heaters
You have up to 5 years after installation to either partially or fully utilize the ITC
The system must be installed in the United States and owned by a U.S. Taxpayer
Example of Using the Solar Tax Credit
[Updated 11/11/2015 to reflect changes to the Austin Energy Solar Rebate]
Meet Suzie Q. She’s a native of Austin, Texas and heard her local utility was offering a solar initiative for eligible projects. She wants to take advantage of the Austin Energy Solar Rebate AND the solar tax credit to mitigate some of her upfront costs and speed up her return on investment (ROI). Let’s make up a number and say her installation is $25,000 for a 6 kW PV system.
So she’s using a $800 per kW utility rebate PLUS the 30% Investment Tax Credit.
First we apply the Austin Energy Solar Rebate:
$25,000 – (6 kW x $800) = $20,200 Net Installed Cost for her solar panels
THEN factor in the 30% tax credit (rebates are always applied first):
30% x $20,200 = $6,060 she can then use to pay her income taxes.
Just like that Suzie Q trimmed almost HALF of her installation costs by taking advantage of utility and federal solar incentives. Please note this is a solar tax CREDIT – not a deduction. In order to receive the benefit, you have to file taxes and have a sufficient owed amount from which to subtract the credit. Bear in mind, IRS isn’t going to write you a check if you choose to not claim your credit amount within the 5 year period.
Disclaimer: Please consult with a tax professional before any decision is made. They are most qualified to assess the potential impact the 30% federal Investment Tax Credit will have on your unique situation. For all other inquiries regarding eligibility and/or taxation, please contact the Internal Revenue Service at 800-829-1040 or visit their website at www.IRS.gov
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