There’s no doubt that going solar is an incredible investment to make, and it’s never been easier than it is today. On top of the fact that it helps reduce your energy bill and helps the planet, going solar is getting cheaper and more accessible with each passing year. Even with that, many people are taking their time when deciding to go solar. The downside to this is paying a whole lot more for electricity than they need to.
As you’ve probably heard, In addition to the all-time low cost of going solar, you can do a tax write-off for 30% of your overall purchase. The genius behind this is called the Solar Investment Tax Credit, also known as the "the ITC," and it’s saved people thousands of dollars.
The solar investment tax credit dates all the way back 2005, stemming from the Energy Policy Act of 2005. During this time, the ITC was born. The investment tax credit was ultimately meant to be an incentive for people to go solar, as the United States knew the value and the benefits of it.
Although the ITC was designed to expire in 2007, it’s been extended several times, not expiring until 2021. No one knows the future of the ITC for sure, but as long as it is intact, people may as well get the benefits from it! There are just a few things to keep in mind. Most importantly, there are some eligibility requirements needed to write off a solar system during the 2017 tax season.
You Must Own Your Solar Panel System
There are many different ways to finance adding solar panels to your house. You can pay upfront, take a loan, lease it, or use a PPA. In order to qualify to write 30% off on your taxes, you need to own your solar system. If you purchased it upfront with your own cash or will be paying it off with a loan, you own it. If you signed a lease or a PPA, you don’t own it, and you won’t be eligible for the 30%.
The System Should be Fully Operational by 12/31
If you wait until January 2018 or later to have your solar system paid for and installed, even if you signed a solar agreement in 2017, you may need to wait 15 months, until 2018’s tax season, to write it off. To be totally safe, your solar system should receive utility Permission To Operate (PTO) before the end of the year. There is some “wiggle-room,” : in our experience, we’ve had customers receive the tax credit in the upcoming tax season if it’s mostly paid off by the end of the year. In the case of a loan, this would mean making sure the loan providers pay for the system by December 31st.
Besides the obvious downside of needing to wait an extra year to get the benefit of the solar tax, more problems may come if you do wait until January to get things moving. For those who take out a loan, this proves problematic, as some loan providers expect you to pay 30% back within 12 months and then re-amortize the loan. This will vary depending on the loan provider, so be sure to check with them about your specific project. Some of them don’t expect the 30% back until 18 months or even 2 years.
Here's a quick summary of the solar installation process!
You’re Eligible. Now What?
If you plan on getting a solar system installed in your home, there is no time like the present. You might be wondering, “Okay, I am eligible but how do I actually go through the process to write off 30% on my taxes?”. Well, it just takes two forms.
It’s actually very simple. You need to fill out the IRS form 5695, calculate your “Residential Energy Credits”, and document the result on IRS form 1040. Note, we aren’t accountants so we’ll leave the details to how to best fill out these forms to the experts, but know that it isn’t rocket science. Just include those forms in the conversation when you’re doing all your other tax forms as well.
There really is no time like now to go solar. The United States and the entire world has been going solar at an increasing pace and finding a provider has never been easier before. As we mentioned in a previous post, starting in 2020, the credit is reduced to 26%. In 2021, it drops to 22%. In 2022, it drops to 0%! It’s your choice, but our hunch says to take advantage of the ITC while you still can!