Federal Solar Tax Credit: 3 Common Misconceptions
Do you know how the federal solar tax credit works?
If you’ve researched rooftop photovoltaic systems, you’ve probably read that you can save 30 percent just by taking advantage of the federal solar investment tax credit (ITC).
The ITC can dramatically lower your overall photovoltaic system costs. However, some information online paints the wrong picture of how this program works to provide those savings.
By understanding some of the most common misconceptions about the federal ITC for home photovoltaic systems, you can be sure to take full advantage of this amazing program while it lasts.
No, the Solar Tax Credit Program Doesn’t Issue You a Refund Check
Let’s say your installation costs for a rooftop photovoltaic system total $24,000. By claiming the 30 percent solar ITC, will you get a big, fat refund check in the mail for $7,200?
Instead, the ITC amount is applied against your tax liability, or the money you owe the IRS at income tax time.
So while the solar ITC directly reduces the amount you have to pay Uncle Sam dollar for dollar, it doesn’t put cash back in your pocket the way you may have thought.
No, the Federal Tax Credit Amount Isn’t Calculated from Gross Cost
In the example above, we see that the 30 percent credit on a $24,000 photovoltaic system installation would equal $7,200.
This is only if the $24,000 amount is the net system cost. The federal ITC cannot be calculated from the gross costs, as that goes against the IRS rules.
For instance, if you received any state or local financial incentives for installing your home photovoltaic system, you must subtract these before calculating the 30 percent credit amount.
So for example, let’s say your $24,000 installation qualified for a state solar rebate of $2,000 as well as a $1,000 rebate from your local utility company. Your applicable net cost would be $21,000. Accordingly, your federal solar ITC would be $6,300 — not $7,200.
If you calculate the ITC using your gross photovoltaic system costs, you may end up getting a tax bill from Uncle Sam.
No, Not Everyone Can Benefit from the Federal Solar Tax Credit
Most homeowners who install a home photovoltaic system can claim the federal solar ITC. Unfortunately, not everyone will be able to take full advantage of this lucrative financial incentive.
To benefit from the solar ITC, you must owe federal income taxes. If you don’t — if you break even or end up qualifying for a refund check — you won’t be eligible … at least not this year.
The good news is that, as the policy stands, the ITC can be rolled over to future tax years. So if you have a tax liability next year, you’ll be able to claim the 30 percent credit. Speak to your tax accountant or attorney to learn how to restructure your finances to ensure you can maximize this incentive.
The photovoltaic energy experts at Intermountain Wind & Solar design and install residential and commercial systems in Utah and throughout the Intermountain West. Contact us today to learn more about how you can benefit from the federal solar tax credit.