Solar Tax Incentives: 30% of cost
It has never been a better time than now to invest in solar electric. Federal tax incentives are available for consumers for the purchase and installation of solar systems. Current tax credits include both solar photovoltatic (PV) and solar hot water (solar thermal) systems, as well as other renewable energy investments.
In December 2015, the Consolidated Appropriations Act extended the 30% credit for residential solar to the end of 2019. It then steps down over two years and expires completely at the end of 2021.
- 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
The Solar Investment Tax Credit (ITC) provides for:
- Any complete solar power package for home or business.l
- Emergency battery backup system wherein at least one solar panel is used.
- Products that expand your existing solar power system and include at least one solar panel.
- Solar System for RV and boat that has been accepted by the IRS as a second home for tax purposes.
Eligibility of the Federal Tax Credit:
- The home served by the system does not have to be the taxpayer’s principal residence.
- If the federal tax credit exceeds your tax liability, the excess amount may be carried forward to the succeeding taxable year.
- There is no ceiling on the tax credit.
- Applies to equipment and installation costs.
Additional Tax Credit Information:
- The Solar Tax Credit is only available when the solar power installation is purchased.
- The Solar Power approval date determines the tax credit year.
- The IRS allows for carryover on the Solar Tax Credit.
- The 30% Solar Tax Credit is available through 2019.
To Calculate the 30% Solar ITC:
Homeowners calculate the 30% on the net installed cost; i.e., after you’ve deducted the value of any state or utility rebates. For example, say the total cost for your solar installation was $15,000 and you received a utility or state rebate of $3,000, your total upfront expense is now $12,000. Example: 30% x $12,000 = $3600 tax credit that you can deduct from your tax liability to the IRS.
For businesses installing commercial solar projects, the rebate is calculated on the gross installed cost of the solar system; i.e., before deducting for any local or utility rebates. Example: 30% x $15,000 = $4,500 tax credit the business can use toward Federal business tax liability.
The reason for the credit difference is that the IRS views the $3000 utility rebate for business use as “earned income” (which the business has to pay tax on); whereas the IRS considers the $3000 as a “reduction in value” for residential use, and therefore it is not taxable.