THE SOLAR FEDERAL TAX CREDIT
By James Kennedy, Founder and President Beach Cities Solar Consulting LLC
In the six years I have worked in the solar industry, the most common questions I receive are from property owners who want to understand the U.S. Federal Solar Investment Tax Credit (ITC). Recently, Congress extended the 26% Federal investment tax credit through 12/31/22. Please seek the guidance of a licensed tax professional regarding your specific situation as we are not tax professionals and are not providing any tax advice.
The Solar Federal ITC that is available to all U.S. homeowners and all U.S. businesses that install a residential or business solar system on their property is 26% through 12/31/22. This is a federal tax credit (not a deduction) and is used to reduce the Federal tax liability you owe dollar for dollar. Let’s look at a couple of examples to further illustrate this concept.
As a California homeowner, if you were to install a $30,000 home solar system on your home prior to 12/31/22 you would be eligible for a $7,800 Federal Investment Tax Credit. Let’s say in this hypothetical scenario you are a single self-employed California homeowner and owe $50,000 in Federal taxes at the end of the year. So long as the home solar system has been installed by 12/31/22, your federal tax liability for that tax year would be reduced to $42,200 with this tax credit. Alternatively, if you are a W-2 employee that has paid taxes to the Federal government throughout the year, you can expect to receive some or all of this Federal tax credit returned to you as a refund when you file your tax return the following year (actual amount refunded will be based upon your individual tax circumstances).
As a California business, if the company installed a $500,000 solar system on their property, the business is eligible for a $130,000 Federal tax credit (in addition to other tax incentives like MACRS depreciation, which I touch upon in another blog post). Let’s say in this hypothetical scenario your California business owes $500,000 in Federal taxes at the end of the year. So long as the business solar system has commenced construction by 12/31/22, your business’s Federal tax liability for that tax year would be reduced to $370,000 with this tax credit.
Another important point regarding the Federal ITC is that it carries forward to the following tax year if you do not use the credit in its entirety. Many savvy California home and business owners have taken advantage of combining other property improvements that are necessary to facilitate the solar installation (like a re-roof, main electric panel upgrade, an HVAC system installation, or electric vehicle charging infrastructure) with their solar project so that these improvements are also eligible for the solar Federal Investment tax credit.
Interested in hiring Beach Cities Solar Consulting LLC to provide a turnkey solar proposal for your home or business? Get started by e-mailing your last electric bill (12 months for businesses), pictures of your electrical panel outside the home or electrical switchgear inside of your facility, and a picture of your roof here: firstname.lastname@example.org