Claiming the Federal Solar Tax Credit in 2019: Residential vs. Commercial

The federal solar tax credit applies to both residential and commercial solar energy systems, but the rules that govern the upcoming step down of the tax credit have a few key differences depending on which type of system you have installed.

The tax credit is currently 30% in 2019 and will drop to 26% in 2020 for both residential and commercial systems, but the cutoff date differs slightly. For commercial systems, there is a “safe harbor” provision that allows businesses to claim the full 30% if construction on a project has begun in the year 2019 and construction is completed before January 1, 2024. Safe harbor only applies to systems that are owned by businesses.

For residential systems, the solar panel system must be “placed in service” by the end of 2019 to receive the full 30% tax credit according to section 25D of the IRS code governing the renewable energy credit. An IRS private letter ruling has further clarified that “placed in service” means the installation is completed. Starting construction or providing a down payment on a home solar panel system will not secure the full tax credit. Homeowners who install solar in 2020 will receive a 26% tax credit, and homeowners who install solar in 2021 will receive a 22% tax credit.

View the Solar Energy Industries Association’s (SEIA) fact sheet on the solar tax credit step down.

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