How Do I Claim the Federal Solar Tax Credit? - My Florida Solar East LLC

How Do I Claim the Federal Solar Tax Credit?



While many see making the switch to solar as a purely environmental decision, the fact of the matter is that it is almost equally a financial decision.

Businesses and homeowners want to be sure that they are getting the cheapest power possible and intelligently investing their hard earned dollars into things that will have the highest return on investment. In certain states, with the proper incentive utilization, if you farm solar panels for electricity, it may be the cheapest source of power over time. This is largely because of the Federal Solar Investment Tax Credit. Thousands of consumers and businesses utilize this government incentive every year to help them adopt thousands of Megawatts of solar technologies. This has helped skyrocket the demand for solar installer employment. The catch is, not everyone can claim this tax credit.

So, what questions do you need answered before making an informed decision about your ability to claim the Federal Solar Investment Tax Credit?

  • What Is The Federal Solar Investment Tax Credit?
  • Who Is Eligible To Claim The Federal Solar Investment Tax Credit?
  • What Impact Can This Tax Credit Have On Your Business Or Homeowners Taxes?
  • What Is The Difference Between A Tax Credit And A Tax Rebate?


What Is The Federal Solar Investment Tax Credit?

The Federal Investment Tax Credit for select renewable technologies, including solar, is one of many solar government incentives home and business owners to adopt more sustainable and renewable energy practices.

The value is entirely dependent upon the total project cost of the entire solar system for which you are trying to claim it. The total project cost includes solar panels, racking, wiring, inverters and the cost of installation. Currently, the Federal Investment Tax Credit is equal to 30% of this total project cost. So, if your solar system total cost was $15,000, your tax credit would carry a value of $4,500. This means that your total project cost would only be $10,500 out of pocket. It is important to know that this is the last year that the investment tax credit solar award will be available at a value of 30% of the total project cost. This means that projects which begin construction by December 31st, 2019 are still eligible for the full 30%. After this, the Investment Tax Credit drops to 26% in 2020, 22% in 2022 and then fall permanently to 10% beginning in 2022 for business and solar energy home systems.

It is also important to note that it is possible to extend the time frames of any one of these step downs with the passage of a bill through congress. Renewable energy firms are working tirelessly to maximize the installed capacity of solar prior to the decreased value of the investment tax credit solar systems carry. Solar installer employment is at an all time high to help meet this increased demand with no sign of slowing down in the near future.


Who Is Eligible To Claim The Federal Solar Investment Tax Credit?

The most important thing to consider about a homeowner or businesses’ ability to claim the Federal Solar Investment Tax Credit is whether or not they are considered a nonprofit organization.

Nonprofits are not eligible to receive this solar tax credit, and this must pay the full price for the solar energy home systems or larger business systems. To get around this, nonprofits often employ what is known as a 3rd party power purchase agreement. In this type of scenario, a 3rd party, which is a for profit company, will own the solar system on the roof of the nonprofit organization. This way, they can utilize the tax credit. In turn, the nonprofit agrees to purchase all of the power from the solar system, usually for a predetermined fixed rate over time.

In some agreements, the savings of the for-profit company is passed through to the nonprofit organization in the form of a lower price per kilowatt hour. Additionally, it is important to understand that in order to claim the full value of the tax credit, businesses and homeowners taxes must be at least equal to the value of the solar tax credit.


What Impact Can This Tax Credit Have On Your Business Or Homeowners Taxes?

The biggest impact of this tax credit is that it will reduce the amount of money that you must pay the following year to the federal government and keep more of your hard earned dollars in your pocket where they belong. Additionally, it also reduces your out of pocket cost for the system and dramatically shortens the payback period.

Many home and business owners view any payback period less than ten years as highly favorable and see this as a quality investment. Then, once the system has more than paid for itself, it can be viewed as providing “free” renewable energy for your home or business. This idea alone has been enough to convince thousands of people in the past and the addition of a Federal Solar Tax Credit has only brought more consumers and businesses on board.

In theory, if your federal and state tax liability is low enough and the tax credit for solar is high enough, your total federal and state tax liability can be close to or equal to $0 for the year. Solar government incentives make the choice to go solar both environmentally friendly and economically feasible.


What Is The Difference Between A Tax Credit And A Tax Rebate?

The biggest difference between a tax credit and a tax rebate is when you can and cannot take each one on the following year’s taxes.

When looking deeper into a tax rebate, taxpayers are able to take these things regardless of whether or not they owe taxes to ofFlorida Solar Eastt them. This means that, for example, if you were to have a very low income paired with a few deductions, you may not owe any federal tax thanks to the current standard deduction of $12,000 for individual filers. If you were able to also obtain a tax rebate, you could still receive payment in a dollar for dollar fashion. This means if you owe no federal taxes and have a tax rebate of $1,000 you would receive a refund for the full value of $1,000. Tax credits are slightly different.

Tax credits, such as the solar investment tax credit, require you to have some tax liability in order for it to be removed, dollar for dollar, from your tax bill. Let’s now look at an example to illustrate the difference. If the same individual described above receives a tax credit valued at $3,000 from a small solar installation, they would not be able to claim this credit on their following years taxes. This is because they must have at least $3,000 in tax liability and they currently have $0 liability. When looking at tax credits alone, your tax liability cannot be negative. So, let’s assume the same individual now has $2,000 of tax liability paired with the same $3,000 solar investment tax credit. In this case, the individual would be able to lower their tax liability to $0 but would miss out on using the final $1,000 of the federal solar tax credit. It is imperative that taxpayers fully understand their own tax situation before attempting to utilize a solar investment tax credit.

Utilizing the investment tax credit for the installation of farm solar panels for electricity is a great way to lower your overall out of pocket cost and shorten the total payback period for the solar system. Used correctly and by knowledgeable renewable energy firms, it can easily make or break the viability of a renewable energy project. By fully understanding how to claim the solar investment tax credit and the eligibility requirements necessary to claim it, consumers can make much more educated decisions about the choice of whether or not to go solar.

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