Update: At the end of 2020, Congress chose to extend the 26% federal solar tax credit by another two years. Learn more here.
After legislators chose not to extend the federal solar tax credit (ITC) at the end of 2019, the industry is facing yet another interesting loop in the solar coaster: the decline of the federal solar tax credit. While many in the solar industry were disappointed in the results, the decline is by no means the beginning of the end or even necessarily a setback for solar. But it does mean things are changing.
What is the Federal Solar Tax Credit?
For a bit of background, the solar tax credit (part of the Residential Renewable Energy Tax Credit) was established by the Energy Policy Act of 2005. The tax credit proved to be a vital tool in expanding the adoption of clean solar energy in the US, both residential and commercial. In fact, the U.S. solar industry has grown by more than 10,000% since the federal solar tax credit was implemented in 2006.
Though the tax credit played a big role in the expansion of solar, we are confident that home and commercial solar will continue to expand as it becomes even more accessible, concern for the environment grows, and local policy and financing continue to support solar here in Colorado.
What’s the Future of the Federal Solar Tax Credit?
Just because federal lawmakers didn’t expand the ITC in 2019 doesn’t mean the tax credit won’t get extended or has disappeared altogether. The tax credit is starting to step down in phases through 2021 but is still offering plenty of savings – for example, with the 2020 tax credit at 26% there’s an average savings of $5,700 on residential solar systems.
Until 2019, the federal solar tax credit offered those getting residential and commercial solar installations a 30% tax credit. To receive the federal solar tax credit at 26%, homeowners must have their solar panels installed by the end of the year and the same goes to get the 22% in 2021. For homeowners, simply starting construction or giving a down payment won’t cut it. There is a “safe harbor” provision that allows businesses to claim the tax credit based on when they began construction. For example, if you started construction in 2019, you could claim the full 30% tax credit, as long as your construction is complete by Jan 1, 2024. It’s important to note that safe harboring only applies to solar systems owned by businesses.
After 2021, the federal solar tax credit for residential is set to ramp down to zero while commercial will drop to and remain at 10%.
If you want to ensure you maximize your solar savings, start the conversation with your local solar company as early as possible to get on their installation schedule because many companies, including Namasté Solar, sold out early in 2019.
How to Claim Your Solar Tax Credit
Claiming the credit is an easy process. Complete IRS Form 5695, and then add your solar tax credit amount to your standard form 1040. To be eligible for the solar tax credit, you must own your solar panel system, not lease it. Here at Namasté Solar, we do not sell leased systems in part because it shifts the benefit of the tax credit from the owner to the installer, and that doesn’t fit with how we run our business. We want you to experience the full benefits of solar.
The Future of Solar is Now
As the federal solar tax credit begins to ramp down, it’s important to remember that solar is still a great way to invest in the future for homeowners and commercial property owners, both financially and environmentally. The folks here at Namasté Solar are committed to helping customers save money with solar.
But if you’re a homeowner looking to help combat climate change or business owner looking to cut back on utility costs and want to take advantage of the federal solar tax credit? Best to jump on the solar track sooner rather than later.