Renewable energy is a household term today and the most common type of renewable energy is solar. Other types of renewable energy are biomass, hydropower, geothermal and wind. There is a movement in the U.S. to make renewable energy the primary source for energy and it is being led by the government and larger power companies.
The federal government has created a tax credit for those who install a renewable energy source. The credit is very similar to that for hybrid and electric vehicles. The Energy Policy Act was first introduced in 2005 and will soon be coming to an end. Here’s what you need to know.
The solar tax credit allows you to deduct up to 30% of the cost to install a solar energy system in your home or business. Surprisingly, there is no cap on the cost of the system installed.
The Environmental Protection Agency (EPA) first established the tax credit in 2005 and it was only supposed to last until 2007. However, due to its popularity and obvious benefit, Congress has continued to extend the tax credit for over 10 years now. It has been highly effective in driving the initiative to move to renewable energy.
Currently, the tax credit is still available to homeowners and business owners. However, it is about to begin a step-down process. Here are the details:
- 2019-The solar tax credit is 30%
- 2020-The solar tax credit is reduced to 26%
- 2021-The solar tax credit is reduced to 22%
- 2022 forward-Only those who install a new commercial solar system will benefit from a 10% deduction of the cost of installation.
Early in the game owners of a new solar system were not able to claim their deduction until the new system was up and running. Today, owners can file their claim as soon as installation begins.
Qualifying for the tax credit only requires three things. You must install your system by December 31, 2019. You must own the home or business where you want to install the solar system. And, lastly, you must purchase the solar system. So, if you were planning on leasing your solar system, you would not qualify.
Once you have determined that you do qualify for the solar tax credit you may want to know that expenses that qualify. Here is a list of some of the expenses that qualify as part of the tax credit:
- Engineer fees
- Electrician fees
- Freight shipping costs
- Permitting fees
- Permitting service costs
- Professional installer fees
- Solar consulting fees
- Solar equipment
- Tools and equipment
- Wiring, screws, bolts, nails, etc.
The rest comes down to tax time. When you file your tax returns you will need to confirm that you qualify for the solar energy tax credit. You will need to provide all receipts to back up your claim. You will need to complete IRS Form 5965 and add the credit to Form 1040.
Something very important to keep in mind is that this is a tax credit. What that means is that this credit will be applied against any tax liability that you have. If you routinely receive a tax refund, the IRS is not going to write you a check for 30% of your solar system installation and give you a refund. Additionally, if your tax credit is more than what you owe, the IRS will only credit you to the maximum of what you owe. As an example: If you owe $4,000 in taxes and your solar tax credit is $5,000, the IRS will credit you $4,000. They will not write you a check for the remaining $1,000.
Are you ready to learn more? To find out how you can go solar and become less energy independent, request a free quote from us at SAVKAT Solar. Still have more questions? Check out our Solar 101 page or our FAQ page. If that still leaves you unsure, we are happy to answer any other questions by giving us a call at 800-860-6932.