Ean GoodguyAugust 30, 20183710
If you’re purchasing a solar energy system right now, one of the most significant solar incentives that you’re qualified to be the 30% federal Investment Tax Credit (ITC). But not all people who go solar is available to receive it, and for those who do, there are several ways to calculate it. We’ve created a helpful FAQ/layman’s guide to the federal solar ITC, but please note that we can not offer tax advice and all information concerning tax credits should be approved with your tax specialist.
Solar Tax Credit
Know the difference; a tax credit is not a tax deduction. With a tax deduction, you deduct some quantity off your gross income to determine your taxable base income. A tax credit is much more substantial. It can be used to clear your owed federal taxes. So, it’s sort of like getting an IRS gift card.
Do You Get A Tax Credit?
Any U.S. taxpayer who buys a solar or other renewable energy system is qualified to receive the 30% solar ITC.
Nonetheless, if you installed your solar system with a solar lease or a solar PPA, then you’re not likely. Since the leasing company owns your solar system, they will get the ITC. But most leasing companies take the amount of the 30% ITC into compensation when calculating your lease rate, so you can still benefit secondhand.
Calculate 30% Solar ITC
Estimating the 30% ITC differs for homeowners and commercial businesses. Homeowners count the 30% on the net installed expense; i.e. after you’ve decreased the value of any state or utility rebates. For instance, say the total price for your solar installation was $15,000 and you received a utility or state rebate of $3,000, your total upfront expense is now $12,000. Consequently, to estimate the 30% ITC:
30% x $12,000 = $3600 tax credit that you can accept to cover your taxes to the IRS.
For companies installing commercial solar projects, the discount is calculated on the gross installed price of the solar system; i.e., before deducting for any local or utility rebates. So, employing the same example:
30% x $15,000 = $4,500 tax credit that your business can use toward approaching Federal businesses income taxes.
You maybe think that companies get a higher ITC formula. However, the IRS counts the $3000 utility rebate as earned income, and therefore the business has to pay tax on that $3000. For residential homeowners, the IRS holds the $3000 as a “reduction in value,” sort of like a sale discount, and hence it is not taxable.
30% ITC Refundable
What if you’re eligible to get the ITC, but you don’t owe any taxes this year? Will the IRS send you a refund check for $3000, using the above model? Regrettably, the 30% ITC is not a refundable credit. Yet, you can use its value for up to 5 years after installing your solar system, so you’ll be ready to use it partially or entirely for the following year’s tax bill, or for consequent years.
Once again, we’re not tax attorneys, so please be sure to confirm all of the above ITC information with your tax representative.
In summary, the solar ITC is a precious solar incentive if you’re going to purchase a solar system with either money or a home equity loan. For homeowners that finance their solar systems with a solar lease or a solar PPA, it’s indirectly included in your monthly payments.
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