What is The Solar Tax Credit?
The tax credit for installing a solar system on your home or business has been around in various forms since the Energy Policy Act of 2005. Also known as the solar Investment Tax Credit or ITC, this federal program allows anyone who installs photovoltaic solar panels to deduct 30% of the installed cost from one’s federal income taxes. The credit applies to both residential solar, as well as, commercial applications and there is currently no cap. The solar federal tax credit does not apply to thermal pool heating solar panels.
The Solar ITC was originally set to sunset on 12/31/2016, but in the 2016 federal budget approved by Congress on 12/18/2015 the solar tax credit was extended for five more years and is now scheduled to sunset in 2021. One notable difference in this latest version is that rather than simply ending in 2021, the new version of the Solar ITC contains a step down over several years. This means that the 30% tax credit available today (2017) will gradually be reduced to zero for residential customers by 2021 as such:
- 2017, 2018, 2019: The solar tax credit stays at 30% of out of pocket system cost (after rebates and other incentives)
- 2020: The Solar ITC is reduced to 26% of the installed cost of a solar array.
- 2021: The tax credit drops again to 22% of turnkey solar cost
- 2022 and beyond: Residential solar will no longer be granted federal tax credits, but commercial solar installations will still qualify for a 10% tax credit
Is the Solar Tax Credit a Rebate?
For solar customers in Lancaster, Palmdale, and beyond, it is important to understand that the Solar ITC is IS NOT A REBATE. As its name implies, it is a TAX CREDIT. This means that solar customers receive a credit against federal taxes owed. Thus, if you purchase a $30,000 solar panel system, you will receive a $9,000 credit against taxes you owe. In other words, you must owe the federal government at least $9,000 (in this example) to take advantage of the full credit.
For many Lancaster, Palmdale, and Antelope Valley taxpayers, taking advantage of the solar tax credit is straightforward. Others, however, simply may not be paying enough federal taxes in any given year to take advantage of this federal solar incentive. It is critical that you discuss any potential tax credits you plan to use with your tax adviser or a licensed professional to ensure you qualify.
For solar homeowners who can take advantage of it, the federal government provides 30% equity in the solar installation from day one. We can all agree that 30% off any purchase is a substantial incentive.
Can I Finance the Solar Tax Credit?
In today’s residential solar market, many solar financiers offer tax credit financing where they pay the solar installer 100% of the system price, but base the consumer’s monthly payments on 70% of their installed cost. These kinds of financing arrangements generally allow the loan payments to be less than your current electric bill if you live in high usage areas like Lancaster, Palmdale, Victorville, Apple Valley, and the high desert. These solar loan programs often allow consumers up to 18 months to file for the tax credit. The homeowner then forwards the refund to the finance company. If the homeowner decides to keep the tax credit, the monthly loan payment simply adjusts up to cover the deficit.
Here at SolarShoppers, we understand navigating the Solar tax credit can be confusing. Our energy experts will answer your questions and are here to provide the information you and your tax professional need to make an informed decision.
With time running out for the solar tax credit, there’s never been a better time to install solar! Contact SolarShoppers today for a complimentary solar analysis or stop by our showroom on The Boulevard at 703 West Lancaster Blvd in Lancaster and meet with one of our solar experts in person.