Learn About the Federal Tax Incentives for Solar Power

Federal Tax Credit - Solar Panels

When you install solar panels on your home, you start saving money almost right away. Solar panels can dramatically reduce your monthly energy bill, starting on day one. It doesn’t take long for those savings to cover the cost of installation, meaning you keep a little more money in your pocket each month.

But the savings don’t stop there. Not only will solar panels dial down your monthly energy bill but you’ll also get one heck of a tax credit on your IRS filings next spring. It’s Uncle Sam’s way of saying, “Thanks for helping our country take a step forward.”

So how do you claim the federal solar tax credit in 2019? And what does it cover? Let’s dive in.

A Closer Look at the Federal Tax Incentives for Solar Power: How Do They Work?

First and foremost, you should know that the federal solar tax credit is known more formally as the Investment Tax Credit (ITC). It’s part of a congressional effort to encourage more widespread adoption of solar panels throughout the United States. And it has been very effective in doing just that.

Noticed an uptick in the number of solar panels on newly constructed homes in your area? Or a growing number of businesses proudly announcing new solar power initiatives? Sure, there’s some good environmental stewardship wrapped up in all that. But if there’s anything driving the current craze, it’s these aggressive federal tax incentives for solar power — and the fact that they won’t be around much longer (more on that in a moment).

So what will the ITC get you? A tax credit equal to 30% of your total cost of installing a solar energy system.

That can add up to a huge tax credit, especially when you consider that “total cost of installation” really means total cost. That total can include:

  • The solar equipment itself
  • Solar consultant fees
  • Installation fees
  • Electrician fees
  • Engineering fees
  • Permitting expenses
  • Wiring
  • Tools, parts, and equipment (whether purchased or rented)
  • Freight shipping costs

There is no limit on how big your federal solar tax credit can be. Take whatever amount you spend on your solar project, and you can claim a tax credit worth 30% of that total cost.

Solar panel systems are far less expensive than they were even a few years ago, both in terms of the equipment itself and the costs of installing it. How much you spend will largely depend on how extensive a system you decide your home needs. A certified building performance analyst at REenergizeCO can help you make that determination

Tax Deductions vs. Tax Credits

It’s important to understand that the ITC is a tax credit, not a tax deduction.

What’s the difference? We aren’t accountants or attorneys, but we’ll take a quick stab at the distinction:

  • A tax deduction generally refers to a portion of your income that is exempt from income tax (usually because you had to spend that income on a business expense or because it was covered by another deduction allowance, such as the standard deduction).
  • A tax credit, meanwhile, is a dollar-for-dollar reduction of the total amount of income tax you have to pay.

So if your total tax bill for the year is $14,000 but you earn a federal solar tax credit of $5,000, you can drop $5,000 off your tax bill just like that. You’d only owe $9,000 in income tax for the year. (These numbers are offered purely as a hypothetical illustration; be sure to discuss your specific tax situation with a qualified tax professional in your jurisdiction, as your tax situation may be more complicated.)

Generally speaking, tax credits offer more profound tax savings than do tax deductions.

Too many websites and blog articles talk about the ITC as a “tax deduction.” Don’t be misled. We’re talking about a federal tax credit here — and that’s a big deal.

Who Can Claim the Federal Tax Incentives for Solar Power?

The federal solar tax credit is available to residential solar adopters as well as commercial entities anywhere in the United States.

Why 2019 Is the Year to Go Solar If You Can

All good things must come to an end. Congress first created the federal tax incentives for solar power back in 2005, and they were supposed to expire in 2007. Thankfully, lawmakers agreed to extend them, but not indefinitely.

In fact, 2019 is the final year for claiming the full 30% federal solar tax credit. Here’s what happens to the deduction starting next year:

  • In 2020, the tax credit drops to 26%.
  • In 2021, the tax credit drops to 22%.
  • In 2022 and beyond, commercial adopters can claim a tax credit of 10%, while residential adopters won’t be offered a federal solar tax credit of any kind (unless something changes before then).

State and Local Incentives

This article has focused primarily on the federal tax incentives for solar power. Depending on where you live, there may be additional state and/or local incentives available to you and your family or business.

Alternatively, your electric utility provider may offer various discounts or incentives for installing solar panels.

How to Claim the Federal Solar Tax Credit in 2019: Call REenergizeCO Today

Want to learn more about installing solar panels on your home, how much it would cost, and how much you might save? Schedule a home energy audit with REenergizeCO today.

We’ll send a certified building performance analyst to size up your home’s current energy usage situation and help you determine the most cost-effective strategies for moving forward. Often, the home energy audit will reveal losses of heat or energy that are currently happening in your home and which can be addressed through more cost-effective means. Once those problems are addressed, you may find that a smaller and less costly (and ultimately more effective) solar energy system is right for your home.

REenergizeCO is a Colorado-based home energy efficiency company that helps homeowners increase their comfort, decrease their energy bills, and prolong the life of their home.

We’ve conducted countless home energy audits across Colorado. The process is quick and easy, and it can tell you a lot about your home’s ongoing energy expenditures — all with a view toward increasing your quality of life and decreasing your monthly expenses.

From there, we can make recommendations about solar power and then install the most effective solar energy system for your home. Our team handles the whole process, from permitting to installation and testing (and everything between).

Learn more about solar panel options in Colorado and contact our office to schedule a home energy audit for Denver or Fort Collins today.

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