With the Federal Solar Tax Credit in its final year of full value, homeowners that have recently installed solar panels on their homes or looking to install solar have been asking CAM Solar about the eligibility requirements of this lucrative tax incentive. Of course, a custom-designed and installed solar electric system will provide decades of energy savings for your home — but it can also save you on your taxes and speeding up the return on your solar investment! Here is everything you need to know about qualifying for the Federal Investment Tax Credit (ITC), also known as the Solar Tax Credit.
What IS the Federal Solar Tax Credit?
Let's get the basics of this government-sponsored program down, so that you know what kind of savings we are talking about. The proper name for this policy is the Federal Investment Tax Credit, and it was created to incentivize homeowners to install energy-efficient measures that would reduce the overall energy demand of their home and decrease their carbon footprint. The tax credit allows property owners that have installed solar panels on their home to receive a tax credit of 30% of the total costs associated with their solar installation from what they owe on their federal taxes, with no limit on the dollar amount that can be deducted. This means that for every $10,000 spent on solar installation, you can receive a tax credit of $3,000 from what you owe the federal government on April 15th of the next year.
The Decline of the Federal Investment Tax Credit
The ITC was created in 2005 and extended in 2007, but it is currently set to end after the year 2021. But instead of a hard cutoff on January 1st, 2022, the 30% deduction will actually diminish to 26% after this year, drop to 22% in the year 2021, and will be completely eliminated for residential systems come 2022. So if you haven’t yet started your journey to solar energy, this is the year to do it!
How To Qualify For the Federal Solar Tax Credit
Eligibility for the solar tax credit is pretty straightforward, but there are a few things you should know about the details of this program — like when your solar contractor should begin work on your brand new system, the details of your solar electric system, and what forms you may need to fill out come tax time.
1. Own & reside in your home
Unfortunately, if you are renting your home you will not qualify for this tax incentive. It also does not apply to vacation homes or rental homes you may own and does not apply to solar installations included in new-home construction. But as long as you own the home you live in, you’re well on your way to saving big on your taxes.
2. Installed and in service this year
If you want to maximize the savings on your taxes (AKA the full 30%), your solar installation project must be installed in 2019, and in service before December 31, 2019. While commercial projects have a bit more flexibility in terms of construction being started in 2019.
For commercial, this can include off-site physical work relating to the manufacturing of your solar components, or on-site preparation like installing the rack mounting of your solar panels. You must also have incurred 5% of the cost of your project in 2019.
3. Own your solar panels
There are a few options when it comes to paying for the solar panels on your home. Similar to a car, you can lease or own your custom-designed solar PV system — but leasing your system will disqualify you from this incentive.
4. Have Taxable Income and Fill out your 5695 come tax season
You can claim the solar tax credit if you have taxable income. Once your solar installation is complete and your system is operational, you will need to make sure you keep all of your receipts. When it comes to tax time, fill out tax form 5695 and add your “renewable energy credit” to your standard 1040 tax form! One added benefit to the solar tax credit is that if your total federal taxable income is less than what you are able to claim for the tax credit, you can rollover the remainder of your solar tax credit into the following year.
Still Have Questions about the Federal Solar Tax Credit?
If you feel like you need a little help making sense of this tax credit incentive, don’t worry. You can rest easy when you trust an experienced local solar contractor like CAM Solar — not only will we design a solar PV system that is tailored to the local climate here in both Texas and Colorado, but we are with you from beginning to end. So don’t miss out on the historical savings offered by the solar tax credit, and schedule your solar installation before the end of the year!
Reducing your energy bill and your federal taxes is only a free solar quote away! Start saving today, when you Go CAM Solar. Schedule your solar quote by calling 210-227-3456 or contact us today.
Disclaimer: While we discuss solar tax credits and tax filing in this blog, we also recommend you consult your tax advisor for your specific tax situation. We’re solar experts at CAM Solar and we do not assume responsibility for your tax situation.