Great news, you’ve decided to go solar for your home in 2019! And, why wouldn’t you? The Federal Government is literally paying for 30% of your cost to do so by offering a solar tax credit. Now before I get e-mails saying that’s not quite true, let me explain how the Investment Tax Credit (ITC) works.
Step 1 – You must have a solar system installed on your home to get the solar tax credit
You install a solar system on your home (you must be the homeowner). Keep in mind this is you purchasing solar either with one lump sum payment or by using a financing option available to most individuals desiring to go solar. Why do I mention this? Well, if you lease or enter into a PPA (power purchase agreement) for solar, the entity providing the solar on your roof qualifies for the tax credit, not you.
Step 2 – Complete the proper forms for the solar tax credit
At tax time when you or your tax preparer are doing your taxes, you fill out IRS form 5695. This will let the IRS know how much you spent on solar.
Step 3 – Discover the amount of your solar tax credit
Depending on your tax liability you will receive a solar tax credit on the amount you owe or on the amount you have coming back in a refund from the IRS. Keep in mind this IS a tax credit, not a right off. That is a good thing. The thing you do want to be aware of however is that just because you have a tax credit, doesn’t mean you will get the entire amount in year 1. Let me explain. Let’s say your solar system cost was $25,000. You are now eligible to receive a tax credit for $7500, right? Now, we have to look at the actual taxes that you owe. If you owe $5000 on your taxes that would be great because now $5000 of your $7500 could be used to pay for those taxes. You would then be able to carry over the $2500 still in unused tax credits over to the following year and for up to 5 years. Alternatively, let’s say your company deducts your taxes out of your paycheck every two weeks. At the end of the year they’ve taken out more than you owe and you were due a refund. Now depending on how much you earn and how much is deducted you also have a credit of $7500. So now you could potentially get back a larger chunk of the money that you already gave the IRS throughout the year.
Step 4 – Work with a tax professional
The above information regarding taxes and solar tax credits is meant to make you aware of these benefits. It is not tax advice. Please seek professional advice from a qualified tax advisor to check the applicability and eligibility before claiming any tax benefits or exemptions.
Discuss your individual situation with your accountant, as everyone’s situation is different. You may not have a big enough tax liability to be able to benefit from the tax credit that the government is offering. Don’t get too stressed if that is the case, because the alternative of leasing or doing a PPA is another great way to save money when going solar if the ITC is too hard for you to qualify for.
If you have further questions about reducing your electricity bills or how you can save money with solar, the best thing you can do is explore your solar power options with a qualified professional. Contact HomePro Solutions today. We have the technical know-how and customer service expertise necessary to ensure that every solar power project is a success.