More than twice as many solar installations occurred in 2019 than in 2018.
Many believe this happened because people were concerned about missing out on the federal solar investment tax credit (Solar ITC).
Others, like Yogi Goswami, the Director of the Clean Energy Research Center at the University of San Francisco, believe switching to solar panels on homes provides many benefits. Such as getting free power once the solar energy system is paid off and contributing to a cleaner environment.
You can also use your solar panels to charge lithium batteries which can be used to power many forms of outdoor recreation.
Continue reading to find out more about the Solar ITC.
What is the Solar Investment Tax Credit?
The Solar Investment Tax Credit is part of an energy bill originally passed by Congress in 2005 called the Energy Policy of 2005.
It provides a federal tax credit to property owners for installing solar panels on their property.
The tax credit has been extended at various times. The most recent extension extended the Solar ITC for homeowners through 2021.
How Does the Solar ITC Work?
A federal tax credit is an amount you can claim on your taxes that immediately lowers the amount of taxes you will owe the U.S. government for the year you claim the credit.
For instance, if you owe $1,000 in taxes and your Solar ITC credit is $600, the amount you will have to pay in taxes that year is $400.00.
If you owed $400 in taxes and your Solar ITC credit is $600, you will pay $0 tax that year and you will have a $200 credit to apply to your taxes the following year.
Who Qualifies for the Credit?
In order to qualify for the Solar Investment Tax Credit, you have to be the owner of the solar power system and the solar power system must be installed at your principal residence in the U.S.
This means that if you rent or lease your solar panels, you will not qualify for the credit.
How Much Can You Claim as a Credit?
The amount of credit you can claim for installation of your solar panel system is determined based on:
The percentage amount changes each year. As you’ll see, it gets smaller each year after 2019.
The 2018 solar tax credit is 30%. To claim this credit, you would have had to have had installed your solar system during the 2018 calendar year.
The 2019 solar tax credit is 30% for property owners who have their solar system installed during the 2019 calendar year.
The 2020 solar tax credit is 26% for property owners who have their solar system installed during the 2020 calendar year.
The 2021 solar tax credit is 22% for property owners who have their solar system installed during the 2021 calendar year.
From 2022 on, a solar tax credit of 10% is available only to commercial property owners.
What is the Credit Percentage Based On?
The credit percentage is based on the total costs you pay to have your solar panel system installed.
These costs cover everything from the actual solar equipment to the labor paid to perform the work. This can vary depending on whether or not you perform the work. If not, it can include solar installers, electricians, engineers, and consultants.
It also includes permits, equipment rentals or specialty tools.
When in doubt, if it pertains to your solar panel system installation, keep all receipts and speak with your tax adviser to confirm list everything you are entitled to claim.
How Do You Claim the Solar ITC?
The amount you put on line 1 is your total gross costs after deducting any cash rebates you may have received when purchasing any of your solar equipment.
Line 6 is where you can determine the amount of your Solar ITC.
Depending on what form you file for your tax return, where you put the final number you calculate on Form 5695 will vary.
For Form 1040, it will go on line 53. For Form 1040NR, it will go on line 50.
What Happens if You Take Out a Loan to Pay for Your Solar System?
Since the requirement is that you own the solar system, you can still claim the Solar ITC if you take out a loan.
This true whether you finance the entire installation or take out a bridging loan in the amount of your anticipated Solar ITC. A bridging loan will allow you not to have to pay that amount to your solar installer until after you receive your tax credit for solar panels.
Whether you take out a loan for the full installation of your solar panels or just the bridging loan, there will be fees and/or interest charged.
In the case of the bridging loan, make sure the fees and/or interests do not exceed what you expect receiving as a credit. Not all solar installation companies offer bridging loans but they can likely refer you to someone who does.
Consider Switching to Solar Today
Since the solar investment tax credit is scheduled to go down each year, switching over to solar sooner rather than later is a good idea.
In addition to being able to claim the higher solar panels incentive, your monthly energy bills will go down as well.
To stay on top of what’s happening in the world of solar and batteries, keep an eye on our news page and we will keep you up to date.
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