The Solar Tax Credit Lowdown

They’re in Home Depot.  They knock on our doors on Saturday afternoon.  Their flyers are in our mailboxes.  Solar energy salespeople.  They usually have two major selling points: lower your energy bill and an income tax credit,  known as the ‘solar tax credit’.  This post is about that second selling point, the income tax credit.

Solar Tax Credit Eligibility

To be eligible to claim the credit, you must own the system (not lease it) and the system must be installed on your main personal residence (house, mobile home, condo, etc.).  The recently passed year-end spending and tax legislation has extended the 30% credit through 2019.  The credit has become permanent too, but not at 30%.  From 2020 to 2022, the tax credit will decline from 30% to 10%.

Your newly owned and installed system will generate a nonrefundable tax credit worth 30% of the cost.  The credit will reduce your tax liability to ZERO but will not generate a refund by itself.  For systems installed in 2015, the remaining amount of the credit can be carried forward to 2016 and beyond!  This is a great investment for taxpayers with any taxable income!

Doing the Math

Here are some numbers: A system, owned and installed for $30,000 in 2015, will generate a $9,000 tax credit on your 2015 1040 (filed on Form 5695) .  But your tax liability is only $4,000.  Not bad, you must have a good accountant. $4,000 of the credit will be used in 2015; the remaining $5,000 will carry forward to 2016.  But your tax liability in 2016 is only $3,500.  You must have hired an even better accountant!  Of the $5,000 credit that carried forward, you will use $3,500.  What about the $1,500 left?  The remaining $1,500 will carry on into the future until fully used.

I think that going solar can be a fantastic financial decision, even without the tax credit.  I’ve witnessed households save $50, $100, or even $200 per month by going solar.  And then you add a 30% credit on top of those savings?!?

One of these solar salesmen knocked on my door a few weeks ago.  “The IRS will give you 30% back on your taxes,” he said.  Wrong, sort of.  I gladly talked to him about how the credit worked.  If you are considering solar, I know a trusted solar energy representative.  His name is Chris Handzel (909-838-2398; chrish@solarmaxtech.com) from SolarMax Technology.  He’d be more than happy to talk to you about your options.  I’d also like to sit down with you to assess whether the 30% credit will help you.