Claiming the Tax Credit for Solar — What Every Homeowner Needs to Know
The economics of solar energy are changing fast, and they are shifting in favor of the average homeowner. The change has been so rapid that many homeowners who looked at solar installations just a few years ago and found it untenable are taking a second look.
Many of those homeowners have been pleasantly surprised at just how affordable a solar installation can be. The solar panels being manufactured today are far less expensive, and much more efficient, than the ones made just a decade ago. What’s more, the technology continues to improve with every passing year, putting solar power within the reach of millions more homeowners around the country.
One of the most enticing things about a solar installation is the availability of tax credits designed to make the project more affordable. These tax credits are so generous, in fact, that in states like California, solar energy is now cheaper than traditional sources of power.
The figure below represents solar prices per kWh based on a report published in February 2015 by Deutche Bank. You can find the full PDF report here. Zeroing in on the residential solar segment, solar on average was priced at $0.07/kWh in 2015, while the average utility rate for California was $0.25/kWh. Since then, it’s gotten even better for homeowners.
Claiming the Available Solar Tax Credits
If you are currently contemplating a solar installation for your own home, there are some things you need to know about claiming the available tax credits. The more you know about the tax credit process and how to claim the money, the easier it will be to make an intelligent and informed decision.
On the Federal level, the tax credit for solar energy is known as the ITC, or the Investment Tax Credit. This tax credit has been around for a while now. The tax credit is applicable on the following dates below:
· 30% for systems placed in service by 12/31/2019
· 26% for systems placed in service after 12/31/2019 and before 01/01/2021
· 22% for systems placed in service after 12/31/2020 and before 01/01/2022
· Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
· The home served by the system does not have to be the taxpayer’s principal residence.
The goal of the ITC is simple — it is designed to make solar energy more affordable to both homeowners and businesses. The IRS hopes to accomplish that goal by granting eligible homeowners and businesses a dollar for dollar deduction from their taxes.
This dollar for dollar tax deduction is equal to 30 percent of the total cost of the solar energy system being installed, a significant savings by any standard. When you consider that the cost of installing a solar energy system was nearly $30,000 as of 2015, the value of the tax credit would be more than $8,700.
Significant Savings for Homeowners and Businesses
That Federal tax credit can significantly reduce the cost of a solar installation, but it is important to know how to claim the money you have coming. If you are already in the midst of a solar installation, or if you have already completed one, you will need to take the right steps to make sure you get the credit for which you are eligible.
Taking the Proper Steps
There are three basic steps to claiming the Federal ITC, and it all starts with making sure you are eligible for the tax credit. Chances are you are not a tax expert, so you will want to consult with your accountant or tax preparer to determine your eligibility.
ITC Eligibility Requirements
While it is still important to consult with a tax professional, you should be eligible for the ITC if you own your own solar energy system. If you lease your solar panels, it will be the third-party owner, not you, who is eligible for the tax credit.
If you are eligible for the Investment Tax Credit, you will need to download form 5965 from the IRS. This form is available at IRS.gov, so getting your hands on it should not be difficult.
Form 5965 is also built into most popular tax preparation programs, like Turbo Tax and H&R Block. If you use one of those programs to do your taxes, you should be able to determine your eligibility and claim your credit using their software.
Claiming the Tax Credit
The third and final step to claiming your solar energy tax credit is completing your usual 1040 form. If you use a professional to file your taxes, you will want to provide that individual with all the supporting paperwork for your solar installation — a paid invoice and the solar installation agreement should suffice.
If you do your own taxes, be sure to fill out the appropriate paperwork, including the aforementioned form 5965. You will want to double-check the amounts on the form to make sure you get the credit you have coming.
If the amount you owe in Federal income taxes is less than the total amount of savings from the ITC, you will still not lose any money you have coming your way. You can simply roll the remaining tax credit amount over to the following year, using the savings to reduce your tax liability going forward until the tax credit is exhausted.
The federal government clearly has a vested interest in the energy savings of its citizens, and with the ITC, the IRS is putting its money where its mouth is. There is still time to get in on the savings, reducing the cost of your solar energy system. Converting your home or business to solar energy means you can use the ITC to save money now — and you can enjoy years of lower utility bills going forward.
Call To Action
If you want to find a solar installation at less than the cost of your utility, reach out for a no obligation quote.
