Why You Should Take Advantage of the Federal Solar Tax Credit Now
Going solar can be a great way to save on electricity bills and add value to your home — especially when the solar investment tax credit (ITC) offers such an appealing discount. Those considering taking advantage of the massive 30% deduction on the cost of a solar panel system should act fast, however, as the credit won’t last forever. In fact, the first scale back on the credit is slated to happen as soon as 2020. That means 2019 is the last year to take advantage of the full federal tax credit along with any California solar tax credits.
Timeline for the Investment Tax Credit
While some people may not like that there will be major cuts into the federal investment tax credit for solar panel systems, it is important to remember the original establishment of the credit. When the Energy Policy Act that included the ITC was enacted in 2005, it was only slated to last for two years. Numerous extensions resulted in the credit remaining effective through 2016. Even though those extensions were set to expire, many solar and energy experts pushed for an additional extension of five years to allow for the solar industry to grow even more. In 2015, Congress passed a bill that extended the credit all the way through 2021, with some adjustments year to year.
Here is the timeline for extended federal tax credit:
2007 – 2016
The first extension on the ITC pushed it through 2016, maintaining the original 30% tax deduction for homeowners as soon as their system was operational.
2016 – 2019
Additional extension pushed through, preserving the 30% deduction based on the entire cost of the solar panel system, allowing for optimal discounts for homeowners.
Any new solar panel system installed after 12/31/2019 will only be eligible for a tax deduction of 26% of the installation expenses.
After 12/31/2020, homeowners and commercial property owners will only be able to deduct 22% of the solar system costs from taxes.
2022 – Onward
The new tax credit rate for commercial solar systems will be 10%, while homeowners will no longer be offered any federal tax credit for new systems installed.
Keep in mind, newer legislation enables solar energy system owners to claim the tax credit even if the system isn’t fully operational — so long as construction is completed. The only requirement is that the system be up and running by 2023.
Will I Be Eligible for the Tax Credit?
Any homeowner who has installed and owns their solar panel system will remain eligible for the full 30% tax credit through 2019 and any subsequent credits the years following.Just make sure to file IRS Form 5695. What if you are not going to have enough tax liability to even claim the full credit? The credit can be split between years, rolling into the next years for as long as the credit is still in effect.