For those considering solar, the clock is ticking on the opportunity to maximize their savings through the federal Investment Tax Credit (ITC). The ITC is set to step down from the current level of 30% at the end of this year (through its eventual elimination for homeowners in 2022). If you have been thinking about or planning a solar project, but you let the year run out, that will mean less money in YOUR pocket.
The federal solar tax credit, also known as the investment tax credit (ITC), currently allows homeowners and businesses to deduct 30% 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.
In July, a bipartisan group of lawmakers in Washington, D.C. introduced the “Renewable Energy Extension Act,” legislation that would extend the solar ITC for five more years at its full 30% value. [Read more about the legislation HERE.] But you can be sure that, with the 2020 presidential election approaching, politics are likely to impact the eventual success or failure of the Renewable Energy Extension Act.
Here’s how the step-down will work, if the extension fails to pass in Congress:
- Through Dec. 31, 2019: The tax credit remains at 30 percent of the cost of the system, 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 onward: 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.
To illustrate the financial impact: 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 while starting to save on your electricity bills now?
According to the Solar Energy Industries Association (SEIA), the solar industry in the U.S. employs 240,000 workers and generated $17 billion of investment last year. And we are truly at a critical point in addressing climate change. We sincerely hope that Congress is able to move the proposed legislation forward and continue to support the upward growth of our industry!
You can find detailed information about the ITC HERE. If you move forward with a project before year’s end, you will 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!