This is a great article originally posted on credit.com explaining the Solar Tax Credit and how you can take advantage before its too late. The author John Smith did a wonderful job explaining this from a completely non-biased perspective and continues to write great content to help consumers make informed decisions.
The U.S. has been grappling with the idea of making renewable energy the primary source of power for homes and industries. Solar energy is by far one of the most popular in the market today. As an incentive to ensure that as many homeowners as possible adopt the use of solar energy, the federal government came up with the Energy Policy Act of 2005 which first introduced the solar tax credit.
What is a solar tax credit?
The federal solar tax credit allows you to deduct up to 30% of the cost of installing solar energy systems in homes and industries in the U.S. There is no cap to the value of the system installed, and this deduction applies to both residential and commercial solar system installations.
A small history of the solar tax credit
Originally established by the EPA in 2005, the solar tax credit was supposed to last until the end of 2007. However, due to its vast popularity, Congress has been extending that expiration date for over a decade now. It’s mostly because the solar tax credit has proven to be a highly effective incentive supporting the transition of the country’s economy into the renewable energy era.
Today, the solar tax credit is still available to both home and business owners. Here are some of the details:
2019-The solar tax credit remains at 30%
2020-Homeowners and commercial solar system installation will benefit from a 26% deduction
2021-Homeowners and commercial solar system installation will benefit from a 22% deduction
2022 onward-Only owners of new commercial solar system installation will benefit from a 10% deduction of the cost of installation. There are currently no federal tax credits for residential solar system installations from 2022 onward
There was a time when, as the owner of a newly installed solar system, you couldn’t claim your deductions until your solar system was up and running. Now you can file your claim as soon as the installation process for solar power begins and as long as your solar energy system is up and running by the Dec. 31, 2023.
What are the benefits of the solar tax credit?
The benefit of the solar tax credit for a taxpayer can essentially be boiled down to the benefits of installing a solar system in your own home or your business. The very first advantage is the fact that you get to claim 30% of the installation costs with no cap to how much your system costs.
For example, if you got a system that costs $10,000 you can claim 30% of that and have a tax credit of $3,000. Should your neighbor install a solar system worth $100,000, they get to claim $30,000.
The solar tax credit also has the following advantages:
It has made solar energy more affordable for many home and business owners.It encourages home and business owners to buy their own solar panels-leasing disqualifies you from the tax credit.It helps you save money both during the installation of the solar system.
Thanks to the solar tax credit, you start saving money from day one. Even the fees that go into consultations with a professional solar energy expert count as part of the installation costs.
How do you qualify for the solar tax credit when filing taxes?
If you want to install a solar system, you can qualify for 30% thanks to the federal tax credit. However, to do so, you must meet a few requirements during the tax year:
Your solar system has to be installed by Dec. 31, 2019.You must own and not rent the home or business that you want to outfit with the solar system-a rental property doesn’t qualify.You must own the solar panels. Leasing disqualifies you.
It’s understandable that you might want to lease your solar panels to save money. The problem with this is that the leasing company is the one that qualifies for the 30% tax credit, not you. You can, however, buy your own solar panels by taking out a loan and enjoy the 30% tax credit yourself.
How do I claim the solar tax credit?
Assuming you qualify for the solar tax credit, here are some of the things that you can claim when filing your tax returns:
Solar consulting fees
Tools and equipment
Professional installer fees
Wiring, screws, bolts, nails, etc.
Permitting service costs
You can do the installation yourself if you have the technical know-how but you can’t claim your own labor for installing solar panels as part of the tax credit on your return. When filing your tax returns:
Confirm that you qualify for the 30% tax credit
Gather all the necessary receipts
Complete IRS Form 5965
Add the credit to Form 1040
Once that’s all done, you will have effectively filed for the 30% solar tax credit. You can consult your tax preparer to ensure that everything is in order.
Unfortunately November 15th 2019 is the last day we can guarantee a completion date before December 31st 2019, to be eligible for the full 30% tax credit. Making the decision to go solar moving forward will result in a 26% tax credit as long as the system is installed before the December 31st 2020 deadline. For more information on whether solar power is the right solution for you and receive your free customized proposal give us a call at 804-452-7699 or send your most recent power bill to Service@sunlightsolarvirginia.com
This article originally appeared on Credit.com.