How do taxes fit into the solar conversation?
Solar is an environmentally-friendly home improvement that can bring you tax benefits as well as save you money on your electricity costs.
Currently, the federal government offers an Investment Tax Credit (ITC) for putting solar on your home or business. The ITC provides a significant financial advantage for solar customers by allowing them to deduct 30% of the cost of their solar array from their federal taxes.
How does the solar tax credit work?
To illustrate, if your solar array cost $20,000, you would be eligible for a $6,000 federal tax credit. If you owe $6,000 or more in federal taxes during the same calendar year that your solar is installed, you can effectively “wipe out” that much of your tax liability by investing in clean energy.
If you pay less than $6,000 a year in federal taxes, you can carry forward the credit until it has been fully utilized. For example, if you owe $4,500 in federal taxes in 2018 and are eligible for a $6,000 solar tax credit, the credit would cancel out what you owe the federal government for 2018. The $1,500 left over could be carried over to reduce your federal tax liability in 2019 by that amount. On the other hand, if you overpay your taxes during the same year your solar is installed, your federal tax refund will be increased by 30% of the solar array cost.
How long is the solar tax credit available?
The federal solar tax credit is a tremendous benefit for individuals who choose to invest in solar for their home or business. However, like most tax credits, this one is time-sensitive. 2018 and 2019 are the last two years homeowners will be able to deduct a full 30% of their solar array costs from their taxes. Homeowners installing solar arrays in 2020 will only be eligible to deduct 26% of the cost of their system from their taxes, and in 2021 only 22%. After that, homeowners will no longer be offered a tax credit for installing solar.
As a homeowner, now is an excellent time to effectively save 30% on a solar system by taking advantage of the solar tax credit.