Thanks to the decreased cost of constructing solar panels and the increasing desire to save monthly on energy bills, solar adoption is at an all-time high. No longer a hobby for the wealthy, solar panels are a very real, and very necessary, possibility for home owners. Even better, the tax credits have now been extended through the end of 2019 making going solar that much easier! Made possible by the federal Residential Renewable Energy Tax Credit, until 2019 you can receive a tax incentive of 30% on your new solar panel system. This 30% remains in place until the end of 2019 at which point it goes down to 26% for a year, 22% for a year and then finally 10%.
A tax credit is simply a reduction in the amount of taxes that you owe the government. Generally speaking a residential solar panel system costs about $30,000. In this case, a 30% credit can reduce your taxes but a whopping $9,000. A nice bonus on top of your new monthly savings!
Please keep in mind: The team at Envirosolar is composed of solar professionals, we therefore do not give out tax advice. Taxes differ for each person and anything here may not be appropriate to you. Not everyone will be eligible, therefore contact a tax professional when filing your tax credit.
Tax Credit Eligibility
In order to qualify for the 30% federal Residential Renewable Energy Tax Credit, you must meet the following requirements:
- Your system must be installed by December 31, 2019.
- You must own your home.
- You must pay enough taxes to the Federal Government to qualify for the 30% tax credit.
- You must own your solar panels.
This last point might seem a bit odd to you but unfortunately many home owners are tricked into leasing their solar panels instead of buying them. In the case of leasing solar panels, the company that owns the solar panels is the one that benefits from the tax credit, not the home owner. For more reasons on why you should buy instead of lease solar panels, check out our resource center.
Tax Credit vs. Rebate
It is very important to understand that this is a tax credit and not a rebate, this two differ. Tax credits offset the balance of tax due to the government, so if you owe no tax, there is nothing to offset. Tax rebates are payable to the taxpayer even if they owe no tax. While most people qualify for the solar tax credit, there are some home owners who do not. Anyone who does not owe federal income taxes will not be able to take advantage of the tax credit.
If you do owe sufficient federal taxes the year that you finance or purchase your system, then the credit can be applied to pay off the taxes owed. If you already paid taxes by withholding it from your paycheck, the federal government will apply the tax credit to a tax refund. It is also important to note that the tax credit be carried forward one year.
A homeowner buys a $30,000 solar system, meaning they are eligible for a $9,000 tax credit (30% of the total system costs). Through their employment they owe the government $9,000 in taxes, but this is withheld on their W-9 so they end up owing nothing when they file. In this example, when the solar tax credit is applied to the $0 balance they owe the government, they receive a tax refund of $9,000.
Another homeowner buys a $30,000 solar system but they only owe the federal government $4,500 in taxes because they were on a fixed income. This customer did not withhold any money from their paychecks and therefore owes the full $4,500 when they file. When the $9,000 tax credit is applied, they can only claim $4,500 of it because they only owed that much in taxes. In this example, the customer does not have to pay any taxes that year.
The upside is that any remaining tax credit can be carried forward and applied to next year’s taxes. In that case if the homeowner owes the government at least $4,500 in taxes for the following year, they can utilize the rest of the credit.
How do I use the tax credit to pay down my loan?
Your loan is built to be flexible, friendly and affordable. It’s structured so that if you use your federal solar tax credit or other savings to pay down your loan balance by 30% within 18 months, you’ll lock in a low monthly payment for the duration of the loan.