In the United States, for the next few years, the 30% federal tax credit is available in each state. But in some states, additional incentives are offered. Some cities and counties even offer incentives for homeowners and businesses to get solar power.
Click here to view the State of California Solar Rebates & Incentives
- Federal Solar Investment Tax Credit. For homeowners and businesses with taxable income. The SITC (Solar Investment Tax Credit) starts to decline beginning in 2020.
- State Incentives. These include tax credits, grants, rebates, low-interest loans and financing to make solar more affordable for homeowners.
- Local Incentives.
How does the Federal Solar Tax Credit work?
Solar adoption is skyrocketing, thanks to plummeting solar panel prices that enable homeowners to save money. For the first time, homeowners can control their electricity costs by going solar instead of being at the mercy of ever-rising utility rates. And through the end of 2019, going solar is extra appealing thanks to the federal Residential Renewable Energy Tax Credit, which can be worth up to 30% of the total cost of your solar installation! Under current law, the 30% tax incentive will remain in effect through December 31, 2019. After then it will drop down to 26% for 2020, 22% for 2021, and 10% thereafter.
A tax credit is a reduction in the amount of taxes you owe. The typical homeowner that goes solar in California pays about $30,000 for a 7-kilowatt solar installation. So, in this example, the 30% federal tax credit could reduce your taxes by $9,000 – quite a nice bonus! Taking advantage of this credit is easy as A-B-C, if you know the eligibility requirements and how to claim it.
KEEP IN MIND: We’re solar people, not tax people, so we don’t give tax advice. Anything you read on this page is merely an example and may not be appropriate for your unique financial situation. Not everyone will be eligible, so please consult a tax professional before filing your tax credit.
Tax Credit Eligibility
To qualify for the 30% federal Residential Renewable Energy Tax Credit, you must meet all of the following requirements:
- Your system must be installed by December 31, 2019.
- You must own your home (renters are excluded, unfortunately).
- You must pay enough taxes to the Federal Government to qualify for the 30% tax credit.
- You must own your solar panels.
This last point isn’t quite as obvious as it might seem since many homeowners today actually lease their solar systems through third-party companies. While leasing may make sense in some situations, it means that the leasing company gets to claim the tax credit instead of you! By contrast, homeowners that buy their panels outright or finance them with a loan do get to claim the tax credit.
Tax Credit vs. Rebate
It’s important to understand that this is a tax credit and not a rebate. Tax credits offset the balance of tax due to the government (therefore, if you owe no tax, there is nothing to offset and you can’t take advantage of it). Tax rebates are payable to the taxpayer even if they owe no tax. While most people qualify for the solar tax credit, there are some who do not. Anyone who does not owe federal income taxes will not be able to benefit from the tax credit. And, if you’re on a fixed income, retired, or only worked part of the year, you may not owe enough taxes to take full advantage of this credit.
If you do owe sufficient federal taxes the year that you finance or purchase your system, then the credit can be applied to pay off the taxes owed. If you already paid that taxes by withholding it from your paycheck, the federal government will apply the tax credit to a tax refund. This refund can be used to pay down the balance on a loan. It’s important to note that the tax credit will be carried forward one year, which means that you can use any remainder from this year as a credit towards next year’s taxes.
Contact us to see what you qualify for.