Consumers in the U.S. have been struggling with the idea of having renewable energy as their main source of power for homes and businesses. What we know is that solar power has soared in popularity in recent years.
Business owners are also “going solar” in record numbers as they realize the cost savings of doing so. And thanks to the federal government’s passage of the Energy Policy Act of 2005, there is now a solar tax credit! The 2016 federal spending bill authorized a 5-year extension of the solar panel tax credit. This makes solar power more affordable for all Americans, and that includes business owners.
What Is The Solar Tax Credit?
Known as the Investment Tax Credit (ITC), the federal solar tax credit makes it possible for homeowners and business owners alike to deduct up to 30 percent of the costs of installing a solar energy system from your federal taxes. Think of this as a 30-percent discount on the cost of going solar! The ITC is in effect for residential and commercial systems. Because of the ITC, the average EnergySage Solar Marketplace shopper saves over $5,000 on the cost of going solar in 2019!
You are not eligible for the ITC if you lease your solar panels or if you signed a power purchase agreement. There is no cap as to how much you can claim with the ITC; however, because the ITC is a credit and not a refund, you can’t get more back in a single year than what you owe in federal taxes. Instead, the remainder of your solar tax credit will roll over to the next year.
For more information on the ITC, contact the tax experts at PorterKinney, PC.
While going solar is catching on in big numbers for all consumers, business owners stand to benefit the most based on the U.S. tax code. SEIA (Solar Energy Industries Association) supports smart tax policy that generates continued innovation in the solar industry. Going solar for your businesses allows business owners to directly benefit from the depreciation aspect of the tax code, as depreciation facilitates greater investment in renewable energy and ultimately leads to lower costs.
Known as the Modified Accelerated Cost Recovery System (MACRS), this is a method of depreciation in which a business’s investments in certain tangible property are recovered – for tax purposes – over a specific amount of time through annual deductions.
2 Quick Facts About MACRS:
- Qualifying solar energy equipment is eligible for a cost recovery period of five years.
- The market certainty provided by MACRS has shown to be a significant driver of private investment for the solar industry, as well as other energy industries.
MACRS is the method of depreciation used for most property, though assets vary by class, which determines the depreciable life of the property. Class depreciation timeframes vary between three3 and 50 years, depending on the particular type of property.
How the Federal Solar Tax Credit Extension Changes over time
2016 – 2019: The tax credit remains at 30 percent of the cost of the system; .
2020: Taxpayers, including business owners, using solar energy receive a tax credit of 26 percent of the cost of the system.
2021: The solar tax credit drops to 22 percent of the cost of the system.
2022 and future years: The solar tax credit drops to 10 percent of the cost of the system for commercial projects and is no longer available for residential homes.
Benefits of the Solar Tax Credit
- This tax credit has made solar energy more affordable for many business ownerses and homeowners.
- The Solar Tax Credit encourages business owners to buy their own solar panels.
- This tax credit saves business owners money during theon the installation of the new system.
Business owners who have purchased a solar energy system stand to recoup a lot of money from their tax credit. Here is the extensive list of what you can claim with your solar tax credit when filing your tax returns:
- Solar consulting fees
- Solar equipment
- Freight shipping costs
- Tools and equipment
- Professional installer fees
- Engineer fees
- Electrician fees
- Wiring, Screws, bolts, nails, etc.
- Permitting service costs
- Permitting fees
3 Tips for Solar Shoppers
Presented by Troy at Hot Solar Solutions in Kennewick, WA, your complete solar solutions company:
- Look at a solar company’s Google Reviews, as this is the best independent source when comparing solar companies’ abilities to get the job done right.
- Get at least two Quotes. And when comparing what you get with these quotes, make sure it calculates the same amount of panels, same wattage, and the same production – how many kilowatt hours produced.
- Get a Professional Tax Opinion. We recommend contacting the Certified Public Accountants at PorterKinney, PC in Richland, WA.