The investment tax credit, otherwise known as the solar tax credit will allow you to deduct 26% of the cost of installing a solar system from your federal taxes. This is about a $4,000 – $8,000 average savings for homeowners who go solar in 2020.
The solar tax credit will remain at 26% for solar systems completed and placed in service before December 31, 2020. The tax credit will be reduced to 22% in 2021. After 2021 there will be no solar tax credit for residential customers. However, a 10% credit for commercial entities will remain.
We recommend that those seriously considering solar begin their solar journey early this year.
The History of the Solar Tax Credit
The solar tax credit has been the biggest stimulus for residential and commercial solar that the industry has seen. According to the Solar Energy Industries Association, the residential and commercial solar tax credit has helped the U.S. solar industry grow by more than 10,000% percent since it was implemented in 2006, with an average annual growth of 50% over the last decade alone.
The solar tax credit was originally intended to expire in 2007. Fortunately, it has seen extensions every year leading up to 2022.
Here is the current timetable:
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
How to Take the Solar Tax Credit
You claim the tax credit when you file your federal tax return.
The tax credit is a dollar-for-dollar reduction in the amount of income tax that you would otherwise owe. If you don’t have a tax liability great enough to claim your entire credit in one year, you can roll the remaining credits over into future years so long as the tax credit is still in effect.
There is no cap on the value of the credit, and it is available to both residential and commercial customers.
It’s important to understand that the solar tax credit is not a rebate. In the case of rebates, taxpayers receive payment even if no tax is owed. Anyone who doesn’t owe federal income taxes will not be able to benefit from the solar tax credit.
We advise you to seek professional tax advice before determining if you can claim the tax benefit.
Here are some useful documents:
- A homeowner can claim the 26% credit on IRS 5695, Residential Energy Credits (PDF)
- Solar Energy Industries association has a great FAQ about the solar federal tax incentive (PDF)
Ohio Tax Incentives
Ohio Tax Incentives remain the same. There are no new programs in Ohio to help support the growth of solar.
In 2019 Ohio saw a slew of anti-renewable legislation. The passing of House Bill 6 legislation granted subsidies to two failing nuclear power plants and reduced Ohio’s Renewable Portfolio Standards. Hybrids and electric vehicle owners saw an increase in annual registration fees for their environmentally friendly cars ($100-$200 registration fees). At a national level, the solar tax credit, which had seen regular annual renewals, did not see renewal in 2019.
Incentives boost the market for solar and make renewable energy more accessible to all people in Ohio. But, Ohioans have been without any robust solar incentives for many years now, and the industry has still seen large, natural growth. We see that even in these market conditions consumer demand, return on investment and consumer confidence in solar has created growth in the market.
The solar tax credit combined with the dropping prices has created a strong market in Ohio. Solar makes financial sense for homeowners.
Existing Ohio and non-government programs and assistance for solar include:
- ECOlink – This public/ private partnership ECOLink provides up to a 3% interest rate reduction for up to seven years on bank loans when you complete energy efficient upgrades to your home (like installing solar!)
- $0 Down Loans – Third Sun Solar partners with a national credit union to offer zero money down, low interest loan options. The loans are easy to understand and streamlined through our process