The solar panel tax credit was first enacted in 2005. It was renewed in 2008 and renewed again in 2015 as a way to make solar installation more affordable for homeowners and commercial solar businesses. This tax credit, also known as the investment tax credit (ITC), gives solar panel users the opportunity to take off 30 percent of the installation cost of solar energy systems when they file their federal taxes. This tax credit is valid for both commercial and residential systems with no cap on the value of the credit, saving solar panel users money on installation prices.
The ITC was established by the Energy Policy Act of 2005 and has been extended over a series of years. The tax credit has now been extended for homeowners using solar energy to 2021 while commercial businesses can take advantage of the tax credit for a longer period of time at a reduced discount.
What You Need to Know about the Federal ITC for 2018
The solar panel tax credit will continue to promise a 30% credit off of installation costs for solar systems built before the end of 2019. This means that homeowners and commercial solar businesses are eligible to receive the 30% tax credit as long as their solar energy system is installed before the end of 2019. Here’s what else you need to know about the solar panel tax credit for the upcoming years:
2016–2019: the tax credit will remain at 30 percent for both residential and commercial systems.
2020: owners of residential and commercial solar systems that have been newly installed will receive a 26 percent tax credit on the cost of the system.
2021: owners of residential and commercial solar systems that have been newly installed will receive a 22 percent tax credit on the cost of the system.
2022 and beyond: owners of commercial solar energy systems will be eligible for a 10 percent deduction of taxes from the cost of their systems. There will be no credit for residential solar energy systems after 2021.
It should also be noted that previously, residential and commercial owners of new solar energy systems were not eligible to claim the solar panel tax credit unless the solar system was fully functional and operational. The new legislation now allows owners of new systems to claim the credit immediately after the construction is complete as long as it is fully operational by December 31, 2023.
What Are the Eligibility Requirements for the Solar Panel Tax Credit?
One of the main eligibility requirements for the solar panel tax credit is that users must own their solar energy system as opposed to leasing it from a provider. Users are eligible for the solar panel tax credit as long as they outright purchase and own a solar energy system and do not rent or lease a solar PPA with a third-party solar installer. To put it simply, users must buy the system on their own.
Another requirement is that solar energy systems must use a solar battery. Batteries for solar panels are not considered to be renewable energy, as they are charged by electricity. This means that in order to be eligible for the tax credit, a solar panel system battery must be charged by renewable energy.
In the event that a user does not have enough tax liability to be able to claim the entire solar panel tax credit in one tax year, they are able to roll over the remaining tax credits into future tax refunds while the tax credit is still in effect.
Eligibility for Commercial Properties
To be eligible for the solar panel tax credit on a commercial property, a battery must be charged by renewable energy over 75 percent of the time. The value of your tax credit will depend on how often the battery is charged by the renewable system. To be eligible for the full value of the tax credit, the battery is required to be charged by renewable energy at all times (100 percent). If your battery is not charged by renewable energy 100 percent of the time, the tax credit you receive will be based on how much renewable energy your battery is using.
What Are Other Financial Incentives of Installing a Solar Power System?
Besides the federal tax credit, there are also other incentives which may be appealing to both residential and commercial property owners.
Solar energy can help reduce energy storage costs. Certain states offer certain incentives for cash rebates for solar energy users, which is why you should look into incentives in your state if you are considering purchasing a solar power system. For example, California offers cash rebates for home battery costs while other states like Maryland offer solar battery tax credits starting this year (2018) that can go up to $5,000 for residential installations and up to $75,000 for commercial installations.
Because solar energy is relatively new, many states and cities all over the United States are beginning to offer new incentives to encourage solar battery installations. Speak to your solar panel system installer for information on financial incentives that are available for energy storage in your area.
How Do I Claim the Solar Panel Tax Credit?
To claim the solar panel tax credit, you do it on your federal tax return. Be sure to let your accountant know that you have purchased a solar panel system. The solar panel tax credit is still in effect for the full 30% for 2018 and 2019, so be sure to take advantage of it while you still can.
What Are the Benefits of Going Solar?
There are many benefits of going solar. Some of these benefits include:
- Saves money
- Can increase the property value of your home
- Helps the environment
- High energy security
- Low maintenance
- Guaranteed performance
Take Advantage of the Tax Credit While You Still Can!
Remember, as of 2020, the federal solar panel tax credit will decrease to 26% and be eliminated entirely for residential properties in 2022. If you are considering solar energy for your residential or commercial property, take advantage of the full 30 percent tax credit as soon as you can by installing a solar power system before the end of 2019.