We are not tax experts, but we can share some key facts based on information provided by the IRS about tax credits that will set up customers for success. Here are answers to some of the most commonly asked questions about the Solar Investment Tax Credit (ITC).
We hope you find this quick reference sheet helpful.
No. It is important to understand that the current solar incentive is a tax credit and not a rebate. Tax credits offset the balance of tax due to the government. Therefore, if you owe no tax, there is nothing to offset, and you can’t take advantage of it. Tax rebates are payable to the taxpayer even if they owe no tax
The Residential Renewable Energy Tax Credit can be worth up to 26% of the total cost of a solar installation. A taxpayer may claim a credit of 26% of qualified expenditures for a solar system that serves a dwelling unit located in the United States that is owned and used as the main residence by the taxpayer.
Under current law, the 26% tax incentive will remain in effect through December 31, 2022. It will drop to 22% for 2023, and zero after 2023. However we cannot predict the future and this may change.
Homeowners who do not pay federal income tax will not be able to take advantage of the solar tax credit. The Section 25D residential ITC allows a homeowner to apply the credit to their personal income taxes. It’s like running a tab at a local bar. If you haven’t been running a tab (i.e. paying taxes), you can’t take it off the tab at the end of the night when it’s time to pay (apply the tax credits).
The 26% would need to come from another source of funds such as savings or state/local incentives.
No. Only the original holder of the loan will qualify for the tax credit. If not, the original customer and the new customer will need to work out an arrangement amongst themselves.
Homeowners can apply for the tax credit after their solar installation is placed in service. This means the system must be granted Permission to Operate (connected to the grid) in the previous tax year, but homeowners can always double check with their tax professional for the best advice.
Carrying forward unused credits to another tax year is potentially another option if a taxpayer cannot claim all of the credit in the first year. A tax professional can advise whether a homeowner is able to carry the residential solar tax credit forward to the next tax year.
The solar tax credits are nonrefundable personal tax credits. A taxpayer claiming a nonrefundable credit can only use it to decrease or eliminate their own tax liability. A taxpayer will not receive a tax refund for any amount that exceeds the taxpayer’s tax liability for the year.
There are many useful resources online. Any other questions should be directed to a qualified tax professional.