So what is the Solar Investment Tax Credit?

September 6, 2019 | By Rebecca David

As we come to the close of 2019, a lot of homeowners have questions about the Solar Investment Tax Credit and how it could affect them.

The Solar Investment Tax Credit is the single largest incentive for going solar and 2019 is the year to move forward to maximize savings.

So what is the Solar Investment Tax Credit? The Solar Tax Credit is a 30% tax incentive on the gross cost of your solar system. The only requirements are that you: Own the system by purchasing your solar via cash or a solar loan (lease or PPA financing cannot claim tax credit) and you have income tax liability, which is what the incentive reduces. The Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential solar purchases (Section 25D). ITC 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.

The most frequent follow up questions we get is how does it work?

A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 30 percent of the basis that is invested in eligible property which have commence construction through 2019. The ITC then steps down to 26 percent in 2020 and 22 percent in 2021. After 2023, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent. There is no limit to the dollar amount of the credit and you can claim the credit for your personal residence, either an existing structure or new construction.

Why is it important to sign up now?

The Solar Tax Credit will step down from 30% which could end up costing you thousands in lost credit. The Investment Tax Credit is applied to your array’s total purchase price, so the amount your receive is dependent on the amount your system costs. The drop in the ITC could add up to thousands of dollars. To be on the safe side, your solar project should be fully installed in 2019 to be absolutely certain that you can claim the Tax Credit on your 2019 taxes. To be 100% sure that you can claim the 30% ITC, the sooner you move forward, the better. Even though installing a solar system does  not usually take more than a day, many homeowners do not realize that a solar project may take weeks to complete after the contract signing. This is do to factors such as permitting, financing approval, utility approval, and so on. Starting your project early will eliminate any potential stress on completion.

The last question people usually ask is, will I get a refund?

Depending on your circumstances the tax credit may go toward payment owed to the IRS, cause you to receive a tax refund, or one of the above with a remainder rolling over to the next tax year. The 30% ITC is not a refundable credit so it will not directly be sent back to you as a refund. The tax credit may cause your customers to receive a tax refund, or it may offset the need for them to write a check to the IRS for taxes owed. A tax credit can be used to pay off your owed federal taxes. So, it’s sort of like receiving an IRS gift card.

Every customer’s tax situation is different. EcoMark Solar is not a tax expert and therefore we cannot provide you with tax advice. We encourage you to follow up with your tax professional for specific tax related questions.

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