The Solar Tax Credit for homeowners explained

‍Summary

The U.S. Federal government is giving away a lot of money for people who install solar on their home.  In 2020, you will receive a reduction (credit) in your Federal taxes equal to 26% of the cost of the solar energy system.  The solar tax credit drops to 22% in 2021, and will no longer be available beginning in 2022.     

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What it’s not 

Many people who inquire about the federal tax credit ask how and when they are paid.  Some mistakenly think it is a type of “rebate”, in which they receive a check from the government or solar installer.  A basic review of your tax form will help understand how you will receive the solar tax credit.  Stay with me… taxes may not be a fun topic, but it is when the government is handing out free money for something you already use 24 hours a day (electricity)!

Regardless of your filing status (single, married filing jointly, etc..) or whether you claim the “standard deduction”, the tax credit will be deducted from any taxes you owe for the year.  Claiming the tax credit begins with Form 5695, which then transfers over to the “main” form, 1040 (line 13b for 2019), shown below (for simplicity, all other tax information and data is removed in this example).  This example shows a taxpayer owing $15,000 for the year, but has already withheld/paid $17,000 through regular paycheck deductions.   

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The solar tax credit of $5,915 reduces the taxpayer’s liability to the government from $15,000 to $9,085.  Since the taxpayer already withheld $17,000 from their regular paychecks throughout the year, they will receive a refund of $7,915 from the government after they file their taxes.  If the taxpayer had not installed solar, they would only receive a refund of $2,000.

How much will I receive?

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The solar tax credit for 2020 is 26% of the cost of the solar energy system.  If you wait until 2021 to install solar, you’ll only receive a 22% credit.  The tax credit program for residential solar will permanently expire on December 31, 2021, and homeowners will have to cope with paying full price after that.  Let’s look at the effect this would have on an average taxpayer, continuing our previous example…

Waiting until 2021 will cost you $910.  Waiting until 2022 will cost you nearly $6,000.  The message here is easy to see:  get solar now, while the government is giving away money.  The solar tax credit will not be here much longer.    

Call to action?

Qualifications

There are only 3 requirements for qualifying for the residential solar federal tax credit.  If you answer “yes” to each of the following questions, you qualify:

1. Do you pay U.S. Federal taxes?
2. Do you pay a mortgage on your home or own it outright?
3. Do you live in the home?  (rental properties are not eligible, but vacation homes are)

Triple Bonus 

This is almost too good to be true, but when the government wants to incentivize something, they throw loads of money at it.  Not only does the government offer a solar tax credit, but energy storage (batteries) and necessary roof repairs are also eligible!  While you’re at it, why not charge a new electric vehicle with solar, and receive another tax credit for the vehicle!  Purchase all 4 of these, and the average person would receive about $25,000 from the U.S. Government in 2020.

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The time is now. Waiting will cost you.  We here at Transition Energy are experts in energy and finance, and will help you take advantage of the solar tax credit while it’s still being offered.  Fill out this form, or give us a call now.  

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