Time is running out!
Created in 2005, the solar ITC was made to help grow the solar energy industry. The growth that followed lead to multiple extensions, including the final one in 2015 that drew the line at 2021. While there are other incentives available when going solar, this is deemed the “most important.”
The Solar Industries Energy Association described it best:
“The Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential and commercial and utility investors in solar energy property. (This) allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes. In the case of the Section 48 credit, the business that installs, develops and/or finances the project claims the credit.”
The solar ITC was designed to decline throughout the years, as the industry grew. We are now in the time of decline.
The tax reduction will drop from 30% to 26% in the year 2020, with planned decreases to follow until 2022. While 4% seems insignificant, it is really a huge difference. And to think, in the next three years this could drop all the way to 0% for residential use and leave only 10% for commercial use.
The total cost of your solar installation is $18,000, but you will receive a utility or state incentive of $1,000 and an ITC rebate of $5,400. That is a total incentive of $6,400. Now, calculate the 30% ITC with the initial installation cost.
30% x $18,000 = $5400. That is the tax credit that you can utilize as payment for your taxes to the IRS.
For businesses, the incentive will be calculated on the gross installed cost of the solar project; the gross cost being calculated prior to deducting any local or utility incentives. The state tax incentive for commercial is 10% with a cap of $25,000 per system.
30% x $250,000 = A $75,000 tax credit that your business can utilize as payment for Federal businesses income taxes.
Now, let’s calculate those numbers with the 2020 solar ITC:
26% x $18,000 = $4,680 | 26% x $250,000 = $65,000
That’s a difference of $720 residential and $10,000 for commercial.
The solar investment tax credit applies to anyone who purchases their system outright. If you own your system, you are eligible. There is also a safe harbor provision that will allow you to pay 5% of the project costs before the end of 2019 and still receive the 30% if the project finishes by January of 2024.
I’M INTERESTED, WHAT IS MY NEXT STEP?
Do not wait to claim the 30% tax credit.
*Please verify all information regarding the ITC with your tax representative as we are not tax attorneys.