In 2005 the U.S. Government first offered solar tax credits to incentivize homeowners to transition to cleaner energy sources. Due to its increasing popularity the program was extended time and time again. However, all good things must come to an end and for the Federal solar tax credit the beginning of the end starts in 2020.
The Fed offers two different tax credits to incentivize solar investments. One is for businesses to invest in solar (Investment Tax Credit), while the other is for homeowners (Section 25D Residential Solar Energy Credit). Both credits offer similar benefits, and both will see a reduction in credit from 30% to 26% at the start of 2020. Nevertheless, if you are still in the process of going solar there are some critical distinctions to be aware of.
Businesses have a “safe harbor” provision, which allows a business to lock in the credit at 30%. This is on the basis that a project “commences construction” in 2019 and is completed before 2024. This does not apply to residential homeowners; they will see the normal reduction in credits applied to their systems going forward. If you are a residential homeowner, here’s what you need to know:
If you buy your system outright (pay cash or finance with a loan)
To receive the entire 30% residential Federal solar tax credit your system must be “placed in service” before 2020. You are not eligible to use the “commence construction” safe harbor provision. According to the tax rules your costs are not incurred until the system installation is complete. The credit will reduce from 30% to 26% in 2020, 26% to 22% in 2021, and finally 0% in 2022.
If you buy a newly built home with solar and own the system outright
The year you move into your new home is when your credit eligibility begins. Costs typically are treated as incurred when the original solar energy system is installed. If the new home is constructed and a new solar energy system is purchased, then the costs are not treated as incurred until the taxpayer starts living in the house.
If you lease the system purchase electricity through a “power purchase agreement” (PPA)
The company that is leasing the system or offering the PPA is the one who can claim the tax credit. As a homeowner you are not eligible to claim this credit, as you do not own the system. The company which provides the system instead claims the system, which allows them to offer a better lease or PPA terms to you.
Get your solar tax credit with Sunline while you still can – contact us today for a free consultation.