Do You Qualify for the Solar ITC?
Tax incentives are a huge motivation for many families to go solar. Since tax season has just finished, many people will be wondering what to spend their tax returns on? Some people use that money for vacation, some pay off debts, while others use it to upgrade their home. Solar panels fall under that same category and on top of that, most solar systems end up saving families thousands of dollars on their electric bills from the start.
So why are we talking so much about the Investment Tax Credits (aka: ITC)? Simply put, it’s an important topic when discussing solar. If you haven’t heard, 2019 is the last year for buyers to take advantage of the long standing 30% tax credit on solar systems that the government is using to promote people to switch to solar. It isn’t going away; it’s merely decreasing in size from 30% down to 26% next year. You can check out this post to learn more about that HERE.
Whether you decide to use your tax return towards helping pay for a new solar system or not, this is good information for anyone looking to invest in solar. How to qualify is a common question we get and sometimes it isn’t explained very well inside the industry. Sometimes companies will advertise that they will receive the tax credit as a rebate on their solar system if they are buying it, and that is false. Let’s dive further to understand.
How Do I Know?
There are two main ways of getting a system. You either Buy it or Lease it. For this scenario we are talking about a purchase with cash or a loan. So you’ve made the decision to buy solar. Great! But now you are curious about the ITC everyone is talking about. To break it down, let’s use some numbers for a generic example.
There are a number of things that need to be considered when determining if you could take advantage of the tax credit.
- Your Taxable Income
- Your Tax Write Offs
- Cost of the Solar System
These three things generally make up the info that is needed to get a ballpark answer whether you can take advantage of the tax credit. Let’s put some numbers to these aspects to make an equation.
Your taxable income = $100,000 a year
Your Write Offs = Have 1 child, a spouse, and a mortgage
Solar System = $45,000
With the solar system costing $45,000 that means that 30% or $13,500 is available to write off.
30% ITC = $13,500
With your income, you probably owe, or have paid more than $33,000 in taxes to the government. That makes your tax liability at $33,000. Your mortgage interest and other deductions can bring it down. Let’s say you still have $20,000 in tax liability.
$20,000 is > than $13,500 = Yes you can take advantage of the tax credit
Do you see how you still owe or have paid into the government nearly $20,000 or more? And that 30% of the solar system which equals $13,500 is less than $20,000? This means that you still have a tax liability and can take advantage of the 30% ITC from your $45,000 solar system.
A couple points to take into consideration here. If you cannot take all of the tax credit this year, then ask your tax advisor if you can still take it next year. Tax code changes every year, but in the past, you’ve been able to roll it over for at least 1-2 years after purchase.
Here is an equation that might not make as much sense then for a solar purchase:
Income = $40,000 a year
Write offs = 3 children, spouse, mortgage
Solar System cost = $45,000
ITC = $13,500
Given the numbers, it would be much harder for you to take advantage of the tax credit here because your tax liability is most likely less than $13,500. But wait, that doesn’t mean solar, is a bad decision. In fact, many families in this position can greatly benefit from solar in this position because they can get a solar lease. A leased solar system is also known as a PPA (Power Purchase Agreement). This option is perfect because the tax credit is take out from the price of the system because the solar company that carries the PPA takes the tax credit on your behalf.
People who benefit from a PPA:
- Retired people with no taxable income
- People with low income
When talking about taxes and solar, you can probably see how this question can get complicated quickly when you are first looking at solar. But with the proper guidance, it really can be very simple for you. Part of having a great solar company on your side is having them ask the right questions that ultimately help in setting you up for success in the future. Here at Solar Brothers we pride ourselves on making sure our customers are take care of and guided to the best fitting solar system for their home or business.
If you are interested in getting solar, set up an appointment with us Today!
***Disclaimer: We are not tax professionals. All of our guidance is just that…guidance. Each person, family, and business is unique. To get definite answers on tax credit qualifications, please ask your tax professional, CPA, or whoever handles your taxes.