13 Apr Your Guide to the Solar Investment Tax Credit (ITC)
Ready for some serious savings on both your taxes and your electricity? If you own a solar system, and you pay taxes—you’re in luck! The federal solar tax credit, also known as the investment tax credit (ITC), makes solar more affordable for many Americans and heavily contributes to the stellar ROI of investing in solar. And just because it involves taxes doesn’t mean it’s complicated, either—in fact, the solar investment tax credit is simple to understand and use.
Here’s what you need to know about saving on your taxes with solar:
What is the Solar Investment Tax Credit?
Essentially, the solar investment tax credit just makes it cheaper for folks like you and me to install solar systems on our homes and businesses. Unlike a tax deduction, which reduces the amount you pay taxes on, this credit simply reduces the amount that you owe at the end of the year. Think of it as a “subtraction” from the amount you owe the government.
Fun fact: There’s no cap on the value you can deduct! No matter how complicated or time-consuming the install, you will get a 26% credit if you install in 2020.
How Long Will this Credit Last?
The solar investment tax credit was actually scheduled to go away at the end of 2007, but lucky for us, has been extended in increments since then. This credit won’t last forever, but for the next couple of years, you can still take advantage of this deduction. The original tax credit was 30%, but that dropped down to 26% of the cost of the system at the end of 2019. Through the end of 2020, you’ll be able to deduct 26% of the cost of the system from your taxes. In 2021, this will drop to 22% for residential and commercial systems, and in 2022, this deduction will go away for residential for good.
Long story short: Get it while it’s hot! This deduction might not be around forever.
How Much Will I Save?
The federal solar tax credit gives you a credit of up to 26% of the cost of installing a solar energy system here in 2020. That includes the cost of materials, installation, permits, and warranties! With this in mind, if it costs you $25,000 to purchase and install a system, then you would receive a $6,500 credit on your taxes. Be warned: This credit only applies if you are the owner of your solar system—even if you finance it—but not if you lease the system. That way, you can still take advantage of this benefit of having solar.
Claiming your ITC credit is easy. Just keep your receipts, carefully document the entire process, and use IRS Form 5695 to claim your credit when you do your taxes for the year of installation. If this sounds like as good a deal to you as it does to us—don’t wait! We’ve been helping thousands of Texans go solar for over a decade, and we’re just getting started. Contact us today to get your free quote.