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Maximize Your Federal Tax Benefits With Solar in 2019

February 18, 2019

Listen up Fresno, Visalia, Hanford, Clovis, Tulare and Madera. If you’ve been on the fence about going solar, here’s a great reason to make a decision soon: The U.S. federal solar investment tax credit, known as the solar ITC, is set to decrease after 2019.

 

This tax credit, which you can apply toward your 2019 income taxes. The system must be purchased via cash or loan and installed before 2020.  (There is also a tax credit for businesses that go solar.) 

 

How does the Federal Solar Tax Credit Work?

This tax credit allows up to 30% of the total cost of the system purchased in 2019. If you have a huge tax bill, the credit can be taken all at once or you can utilize the credit over multiple years. For example, if your solar panel system costs $18,000, a 30% tax credit would be $5,400. If you owe $4,000 in taxes for 2019, your tax bill will be reduced to zero, with a remaining $1,400 tax credit for your 2020 and future returns. This IRS solar tax credit comes in handy when tax season rolls around!

Now to put this in perspective, if a homeowner waited until 2020 to install their solar panel system that same system would receive a smaller tax credit. Take the same example above $18,000 solar panel system but now you will only receive 26% of the tax credit back, equaling  $4680. Owing $4,000 in taxes would still cancel out your tax bill but you are only left with $680 for the next year. A whopping $720 is lost because of not taking advantage of 2019’s 30% solar tax credit.

 

How will I know if I’m eligible for the tax credit?

Before you can claim the California solar credit — like most credits, rebates, or deals — there are eligibility requirements. Whether you’re incorporating solar into your residence or your business. Below is a list of the requirements that make you eligible for the Solar Investment Tax Credit:

 

RESIDENTIAL REQUIREMENTS:

  • Solar PV system must be providing energy for your home — your system must be approved and in service.

  • Applicable electrical and fire code requirements must be met.

  • Your system must be placed into service — up and running — after 01/01/2006 and on, or before, 12/31/2021.

  • You must own the PV system, whether it was a cash purchase or finance. If you are leasing the system, then you are not eligible for the investment tax credit.

BUSINESS REQUIREMENTS:

  • Your solar equipment products must be new, not used.

  • Your system must be placed into service — up and running — after 01/01/2006 and on or before 12/31/2021.

  • Your solar energy system must be used by someone that is subject to U.S. income taxes. This excludes tax-exempt organizations like charities, schools, and churches.

  • Your solar system must be located within the U.S.

  • The generated energy cannot be used to heat a swimming pool.

 

Filing to get Investment Tax Credit from installing solar panels is a simple process.

  1. When it is time to file for your taxes, complete the IRS Form 5965 (Federal Solar Tax Credit Form).

  2. Locate the line “Qualified solar electric property costs” on line 1 and enter the full amount of your expenses in that box.

  3. Below that line will be a section on line 6 where you multiply the total by 30% to get the tax credit you will receive back.

  4. Take the number from line 6 on Form 5965 and enter it on Form 1040 in the stated, “residential energy credits” section.

  5. Make sure you include the Form 5695 with your tax submission.

In order to qualify for the credit, you have to own your solar panels. Leasing the panels or being part of a power purchase agreement (PPA) will not grant you the ITC credit.

 

Consult your tax advisor for more information on how to claim your 2019 tax credit.

 

 

Don’t wait too long, the full 30% solar tax credit will be expiring soon.

 

2019 is a very important year pertaining to residential energy incentives in California. The Investment Tax Credit (ITC) grants a 30% tax credit to homeowners for installing solar panels before 2020.

 

As you can see from the graph above, getting a solar energy system installed in 2019 grants the maximum 30% solar tax credit before stepping down to 26% in 2020. The federal government will be offering:

  • Only the solar PV systems that are placed into service prior to 12/31/2019 will be eligible for the 30% investment tax credit.

  • The tax credit amount will step down to 26% for solar PV systems put into service between 01/01/2020 and 12/31/2020.

  • Systems put into service between 01/01/2021 and 12/31/2021 will be eligible for a 22% solar tax credit.

  • Systems put into service between 01/01/2022 and 12/31/2022 will be eligible for a 10% solar tax credit.

  • After 01/01/2023, the solar tax credit will no longer be available for residential solar installations.

  • Unlike the Residential Renewable Energy Tax Credit, the Business Energy Investment Tax Credit will still get a tax credit of 10% for solar energy systems placed into service beyond the end of 2021.

The date that your solar panel system is approved to operate determines the year you can claim your tax credit.

The California tax credit for solar does not have a maximum limit. Whether your solar panel system — installation included — costs you $10,000 or $1,000,000, you can still claim the full 30% California solar tax credit without having to worry about a limit. 

 

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