Updated Solar Tax Credit Information for 2019
One of the most significant reasons that people choose to install solar panels is for the financial and energy-savings benefits. Solar panel installation is not an inexpensive investment, and the upfront cost can deter many people from making the commitment to harness the energy from the sun. The federal incentive, however, is enough to make many reconsider and help contribute towards making better decisions for themselves and the earth. To help support the growth of solar energy in the United States, the solar Investment Tax Credit (ITC) was created. Ever since ITC was enacted in 2006, the U.S. solar industry has grown by more than 10,000 percent. The growth in renewable energy has even created jobs and invested billions of dollars into the U.S. economy in the process. Despite the growth, however, the value of the ITC will start decreasing after 2019.
Now, in the months preceding the new year, is the time to invest in and install solar electricity, solar pool heating, and solar water heating systems, as the ITC will decrease to 26 percent for projects that begin construction in 2020. The ITC will decrease to 22 percent for projects that begin construction in 2021, and after 2021, the residential ITC credits will flatline to zero, while the commercial ITC credit will drop to, and maintain, a permanent 10 percent.
According to SEAIA, however, commercial and utility-scale projects that have begun construction before December 31, 2021 could potentially qualify for the 30, 26, or 22 percent ITC if they are placed in service before December 31, 2023. The taxpayer must meet to confirm that construction of a qualified solar facility has begun in order to claim the ITC credit.
What is the Federal Solar Tax Credit
This tax credit is not a tax deduction, but can be used to pay off your owed federal taxes. Any U.S. taxpayer, business, or residential homeowner who purchases a solar system in 2019 is eligible to receive a full 30 percent solar ITC. If you installed the solar system with a solar lease or a solar PPA, however, then you are not eligible.
How the Solar Investment Tax Credit Works
The ITC is currently a 30 percent federal tax credit claimed against the tax liability of residential, commercial, and utility investors in solar energy property. The Section 25D residential ITC allows homeowners to apply the credit to their personal income taxes. The credit can be used when homeowners purchase and install solar systems in their homes. Under Section 48, businesses that buy, install, develop, or finance the project can claim the credit. The credit, essentially, is a dollar-for-dollar reduction in the income taxes that a person or company would otherwise pay the federal government.
How to Calculate the 30% Solar ITC
Calculating your 30 percent ITC can vary if you are a homeowner or commercial business. The ITC tax credit for residential can be found under Section 25D. If you are a homeowner, then you can calculate your 30 percent on the net installed cost, after you have deducted the value of any state or utility rebates. If 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. You would then multiply 30 percent by $12,000 for a $3,600 solar tax credit that you can use to pay your taxes to the IRS.
Section 48 commercial credit can be applied to both customer-sited commercial solar systems and large-scale utility solar farms. If you are a commercial business, then you will have to calculate from a different ITC formula. The rebate is calculated on the gross installed cost of the solar system before deducting any local or utility rebates. If the cost of your solar installation was $15,000, then you would multiply that by 30 percent, which would give you a $4,500 solar tax credit that your commercial business could use towards Federal business income taxes.
As outlined by the information above, time is of the essence, so if you are a homeowner or a business owner to invest and install solar systems as soon as possible. Take advantage of the federal tax credit with Mirasol FAFCO Solar and contact us today. We want to make sure you are installed by year-end to be eligible for your 30 percent ITC. Please consult with your tax advisor or accountant to see if you qualify for the tax credit. If you are interested in solar electric, solar water heating, or solar pool heating, then speak with a solar expert today.