One of the first questions that we’re often asked about solar is, “Isn’t there a tax rebate?” The short answer is yes. We often see ads touting the Federal tax incentive for purchasing a solar system for your home. But, what does that even entail? Tax season is fast upon us so we wanted to provide our community with some information about this lucrative credit. Chances are, if you haven’t added solar to your home, this credit will lower your overall cost dramatically.
The Federal ITC (investment tax credit)has actually been in action in some capacity for over a decade. It was originally established in 2005 by the Energy Policy Act. Originally, it was set to expire by the end of 2007, but a series of consecutive extensions pushed the date back to 2016. In late 2015, Congress passed an additional spending bill that makes the Federal ITC available to home and business owners through 2022.
Not all years are created equal, however. 2019 is the last year of the 30% maximum credit. After this year, the return will lower quickly until 2022.2020 will offer a 26% credit, 2021 will offer 22% and in 2022 it will drop down to a 10% incentive for homeowners and 0% for commercial customers.
So how does this credit work, anyway? It is surprisingly simple for a tax-related rebate. The credit is considered, “dollar-for-dollar.” That means if you are eligible to receive $2500, you will receive a $2500 credit either toward taxes owed or in addition to your return. Sweet, right?
Currently, there is no cap for how large the system can be. The credit amount is calculated from the overall cost of the project including the service and equipment.
What’s the catch? Well, for many people there isn’t a catch, but for a small number of individuals, there may be. The credit is claimed against your tax liability, so if you do not pay taxes or have a very low, yearly income, then you may not qualify.
The Waldrop family contacted Wells Solar in January of 2018 after a close family friend recommended that they look into adding solar to their new home. They had recently purchased a home in a neighborhood with higher-than-expected energy rates and their utility bill was through the roof (no pun intended), despite having a relatively efficient, new house.
After meeting with one of our energy consultants, they decided to enroll in our $0 down program. This program allows families to pay for their solar in small, low-interest payments that mostly replace their electricity bill. Their solar energy system was installed in March, giving them plenty of time to file for their incentive with their 2018 taxes.
The overall cost of their system was $18,576 which means they were eligible for a $5,572 tax credit. When they filed their taxes, that $5,572 amount was added to their return. The Waldrops were so excited to put that toward the sum of their solar system and enjoy low, budget-friendly payments for electricity for years to come.
This credit cannot be applied to rental homes. The only exception to this is if you lived at the home with solar part-time. Your go-to tax forms for this credit is the 5695.
Remember, we are here to be your solar experts, but tax law is not our area of expertise. Check with your CPA to ensure that there is nothing standing in your way from making the most out of the Federal ITC.
If you’re ready to learn more about solar options for your home, reach out to us here. We’ll partner you with one of our highly-trained and experienced energy consultants to get your solar project started before it’s too late to claim the 30% tax credit.