It's hard to believe it's already 2019! This year, there's an important solar update every homeowner needs to be aware of.
The Federal Solar Tax Credit (also known as the Investment Tax Credit or ITC) steps down from 30% to 26% after 2019.
We did a deep dive on the tax credit step down in a recent episode of Pick My Solar LIVE! Watch Patrick and Rex discuss the implications below.
Here's everything you need to know about the step down schedule, and how to claim the tax credit. Don't hesitate to leave a question in the comments section below.
Disclaimer: This content is for informational purposes only. Please consult with a CPA or Tax Advisor before filing.
What is the Solar Tax Credit?
The Solar ITC is a 30% tax incentive on your gross solar system cost.
The only requirements are that you:
- You own the system by purchasing your solar via cash or a solar loan (lease or PPA financing cannot claim the tax credit)
- You have income tax liability, which is what this incentive reduces
Note, if your 30% tax credit is $6,000 total, and you only have $5,000 in personal income taxes one year, you can rollover the remaining $1,000 to next year's income taxes.
This incentive has been huge for home and business owners since 2005 as part of the Energy Policy Act. The federal government has already extended the incentive expiration date twice before. The most recent extension in 2016 added a "step down" schedule that gradually phases out the credit over a few years. Check out this video to know more about solar tax credit.
Solar Tax Credit Step Down Schedule
This is the last year for the full 30% credit! Starting 2020, the credit will drop to 26%.
Here's the full solar Investment Tax Credit step down schedule:
Here's a table of the ITC step down:
* 2022 onward, the residential portion of the Solar Tax Credit will be eliminated entirely. A 10% tax credit will remain for commercial and industrial projects only.
What will happen when the Solar Tax Credit steps down?
This is obviously speculative, but we foresee a couple possible outcomes to the tax credit stepping down:
- States take charge
- As more and more states like California launch 100% Renewable Portfolio Standard (RPS) targets, one can expect additional solar incentives to become available for homeowners residing in those areas.
- These incentives would ideally meet or exceed the federal tax credit as it goes away, but that's very uncertain.
- Congress adjusts the step down
- As this has been extended in the past, there's always a chance that the government may decide to adjust this schedule in the future. This does, however, depend on politics...
- With the most recent extension, the very fact that legislators built in a step down makes us find it less likely to be extended at the highest 30% level.
- Residential is also going away entirely in 2022. Congress could consider including homeowners in the 10% floor that commercial currently has, but that's purely speculative.
How do I make sure I'm eligible to claim the Solar Tax Credit?
To be on the safe side, your solar project should be fully installed and paid for in 2019 to be absolutely certain that you can claim the tax credit in 2019's taxes.
This isn't a concern in early January 2019, but the urgency increases towards the end of the year.
Even though physically installing a solar system usually does not take more than a single day, many homeowners do not realize that a solar project may take weeks to complete after contract signing. This is due to factors such as permitting, financing approval, utility approval, and so on. Read more about the solar installation process here.
Therefore, to be 100% sure that you can claim the 30% ITC, the sooner you move forward with your project, the better.
Towards the end of the year as word begins to spread about the incentive stepping down, solar installers will likely get busier and busier, meaning your installation may be scheduled farther out than normal.
How big of a difference is a 26% tax credit versus a 30% tax credit?
The Investment Tax Credit is applied to your solar array's gross system cost, so the amount you receive is dependent on the amount of solar you're purchasing. Bigger system, bigger credit.
Here's a quick example of the difference in credits in 2019 and 2020 for a $27,000 9 kW solar array.
Installed and claimed in 2019 taxes at the full 30% level, your credit would be $8,100. Installed and claimed in 2020 taxes at the 26% level, your credit would be $7,020.
That's a savings difference of $1,080 compared to the previous year.
|Year||Gross Solar Cost||Credit %||Credit Amount||Net Solar Cost|
While ~$1,000 may not seem like a huge difference to some, if you're already decided to go solar and just waiting for the right moment, you should move forward this year to maximize your savings.
How do I claim the tax credit?
To claim your project tax credit when filing taxes, complete IRS Form 5695 - Residential Energy Credits.
For an in-depth explanation of filing the credit, follow our full step-by-step guide here. Also, check this video that walks you through the process for claiming the federal tax credit.
Final Tips to Homeowners Considering Solar
- The Solar Investment Tax Credit is the single largest incentive for going solar. 2019 is the year to move forward to maximize savings.
- As 2019 approaches it's end, more and more homeowners will be trying to complete their projects. Starting your project early will eliminate any potential stress on completion.
- Use Pick My Solar's online marketplace to receive competing quotes from top solar providers. The more quotes you receive, the more likely you'll find the right type and price system your home needs. Try our solar calculator for an instant snapshot of your savings with solar.
What do you think? Will going solar be your 2019 New Year's resolution?! We're happy to help.