The decision to install a solar energy system is not one to be taken lightly. It’s a significant investment, one that requires advance research and considerable thought. It’s also not inexpensive (although it is an investment that pays off in many ways, over time). While it is not our style to hurry a home or business owner considering installing solar, there is a hard deadline coming up – one that will have financial repercussions – that we felt you should be aware of.
The federal solar tax credit, also known as the investment tax credit (ITC), allows homeowners and businesses to deduct 30 percent of the cost of installing a solar energy system from their federal taxes. The Tesla Powerwall also qualifies for the federal tax credit, either installed in tandem with the solar array or up to one year after the solar energy system is installed.
Thanks to the ITC, people have saved thousands of dollars on their solar and home battery installations. We’ve been told by numerous clients that the ITC has made the difference, financially, in their ability to move forward on their solar projects. But after 2019, the amount of the federal tax credit will begin stepping down.
If you are or have been considering a solar energy system for your home or business, we encourage you to make plans NOW because the tax credit value will be reduced each year after 2019. Here is how that will work:
- 2018-2019: The tax credit remains at 30 percent of the cost of the system until the end of 2019, with no cap on its value.
- 2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes until the end of 2020.
- 2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes until the end of 2021.
- 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.
In the past, owners of new solar energy systems could not claim the tax credit unless their system was operational. Currently, the legislation allows them to claim it in the year construction of the system is commenced, as long as it will be operational by December 31, 2023.
Due to the scheduled reduction of tax benefits, the solar industry is already seeing an uptick in project volume that will only intensify as we move into 2019. It is possible that you may not be able to install your system in time to qualify for the 30% ITC if you wait until the latter half of 2019 to go solar!
For a residential solar energy system and a Powerwall 2.0, with a total installed value of $35,000, the federal tax credit would be $10,500. That credit drops to $9,100 in 2020 and further to $7,700 in 2021. And $0 for residential systems in 2022 and beyond. Why not maximize your tax benefit and start saving on your electricity bills now?
You can find detailed information about the ITC here. You will also want to give your accountant a heads-up about your solar and/or home battery installation; you’ll need IRS Form 5695 to claim your federal tax credit.
Please don’t hesitate to give us a call to talk about harnessing the power of the sun for your home or business!