What’s Happening to the Federal Solar Tax Credit in 2020?
Do you know when the 30% Solar Investment Tax Credit expires? If you don't, you could lose out on an important incentive.
Solar power is one of the most popular renewable energy sources on the market today. That’s because there is the capacity for solar power in every state in the nation. The U.S. has a long history of grappling with the idea of making renewable energy a main source of power for homes. Various solar incentives have been offered through the years, and one of the most important is the federal solar tax credit, also known as the Investment Tax Credit (ITC), available on solar panel installations.
Over the last nine years, about 33% of solar power capacity in the U.S. has been installed in December. And that trend is likely to continue, as it is expected that many homeowners will switch to solar in the last quarter.
Currently at 30% of the cost of your solar system, the ITC changes at the end of 2019. Homeowners who wait too long to switch to solar power could lose out on an important solar incentive.
What Is the Solar Investment Tax Credit?
The solar ITC is a tax incentive that allows you to claim a percentage of the cost of your solar system on your taxes.
In order to claim the solar ITC, there are two requirements. You must own your solar system. It can be purchased outright or financed through a solar loan. Leased solar power is not eligible for the solar ITC. And you must have income tax liability, since this is a tax credit, which means it is a credit toward the income taxes that you pay.
While it is tempting to lease your solar panels to save money, if you do, the solar panel company is the one who qualifies for the 30% solar ITC, not you. However, if you buy your solar panels by taking out a loan, you’ll get the tax credit and benefit from lower energy bills.
The credit does not need to be claimed in one year. If the tax credit is more than the amount of taxes you pay, you can roll over the remainder to future years for however long the tax credit is in effect. This tax credit has been a motivating factor for homeowners since 2005. The expiration date of the incentive has been extended two times by the federal government. When it was extended in 2016, a step-down was added. This step-down gradually reduces and eventually eliminates the credit for homeowners.
Solar ITC Step-Down Schedule
While 2019 is the last year the full 30% ITC will be available (unless another extension is passed), it is not disappearing right away. Here is the full ITC step-down schedule:
2019: Solar ITC at 30% until the end of the year for residential and commercial solar panel installations
2020: Solar ITC reduced to 26% for residential and commercial solar panel installations
2021: Solar ITC reduced to 22% for residential and commercial solar panel installations
2022: Solar ITC no longer available for residential solar panel installations. Commercial solar panel installations can get a 10% tax credit.
How to Get the Highest Possible Solar ITC
To claim the 30% solar ITC for 2019, your solar panels must be fully installed in 2019. This will ensure that you are eligible to claim the tax credit on your 2019 taxes.
But that doesn’t mean you should wait to get the ball rolling. December may seem like a long time from now, but it will be bearing down on you before you know it. And it’s likely that there will be an end-of-year rush of solar panel projects that could cause a backlog. Even more so, as people begin to realize the urgency of getting solar panels before the close of 2019, solar panel installers will soon be very busy.
Although solar panels can be installed fairly quickly, financial approval, permitting, utility approval, and other factors can slow down the process. To be on the safe side, begin your research and choose your solar panel installation company as early as you can. That way you’ll be sure to get all of the 30% solar ITC.
What’s the Difference between 30% and 26%?
The solar ITC is applied to your solar panel system's gross cost. An example of the difference between a 30% credit and a 26% credit for a $27,000 9 kW solar panel system.
Solar ITC difference in 2019 vs 2020 for 9 kW solar panel project
Year 2019
Gross Cost: $27,000
ITC 30%: $8,100
Net Cost: $18,900
Year 2020
Gross Cost: $27,000
ITC 26%: $7,020
Net Cost: $19,980
Waiting even a month into 2020 can cost you $1,080 compared to getting it done before the end of December 2020. Be sure to keep meticulous records and keep receipts. Here are some of the things you can claim:
Solar consulting fees
Solar panels and other equipment
Engineer and electrician fees
Hardware such as screws, wiring, nails, etc.
Permitting service costs and fees
The difference between 30% and 26% may not seem like much until you do the math. Once you have your solar panel system installed and are ready to claim your tax credit, consult your tax preparer to make sure everything is in order.














