Homeowners and businesses thinking of going solar (as well as adding battery storage) should act in 2019 to take advantage of the federal solar investment tax credit (ITC) before it begins to step down in 2020.
The ITC allows homeowners and businesses to take a 30% percent tax credit for the cost of solar systems on their properties. This is a one-time tax credit that you receive the first year you own your solar system, and there is no cap on the amount.
However, due to recent legislation, 2019 is the last year of the 30% tax credit. Beginning in 2020, the ITC will step down to 26% for projects that begin construction in 2020 and 22% for projects that begin in 2021. After 2021, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10%.
Homeowners and businesses must invest in solar systems that commence construction through 2019 in order to qualify for the 30% credit. Earlier this year, the IRS clarified the definition of “commence construction” and explained the requirements that a taxpayer must meet to establish that construction of a qualified solar facility has begun for purposes of claiming the credit. SEIA, the solar trade group explains that taxpayers must show that “physical work of a significant nature” has started, or by “paying or incurring five percent or more of the total cost” of the system.
The process for getting the ITC is simple. Generally, your solar installer will give you a receipt for the total cost of your system after it is installed. You can then give this receipt to your accountant and receive a 30% tax credit off the total cost of your system. If you cannot realize the full value of your credit in the first year, you may be able to roll it forward to reduce your tax burden in subsequent years. (Please consult with a tax expert or your accountant).
The ITC also applies to battery storage. Solar owners who install a battery system at the same time as their solar panels can roll the storage costs into their tax credit but only if the battery is charged entirely from the solar. In March 2018, the IRS indicated that existing solar owners who retrofit their solar array with battery storage are also able to take the full 30% tax credit for the cost of their battery installation.
The ITC is a good example of how a well-planned tax incentive can jump start a key clean energy market, driving economic growth and local jobs while promoting energy choice and independence for millions of Americans. If you are planning on installing solar on your home and/or business, now is the time!