Uncle Sam Says: “I’ll Give You 9 Tax-Friendly Reasons Why Now is Solar Time”
Recover Big Wads of Cash in the First 5 Years After Installation
You know solar energy is good for the environment. Everybody knows that. But let’s get real – the reason you’ve hesitated to go solar up to now is because of the money. Solar is expensive.
Or so it seems…
But the truth many are starting to realize is that you can recover a huge portion of your initial solar power investment by taking advantage of various solar tax incentives. Some options vary state by state, but others are federal, meaning you get them no matter where you live.
Here’s a rundown on 9 federal tax incentives (some are phasing out soon!) that make solar power a “must-buy now” decision – especially for farms and businesses. Click here for a partial list of local tax incentives in Georgia.
9 Solar Tax Incentives for Installing Solar Panels in your Home or Business This Year
1. 30 % Across the Board Solar Tax Credit
Sounds simple, and it is. The tax Form 5695 spells out the details, but the bottom line is, whatever your costs add up to during the course of your solar installation, you can get a 30% tax credit for them. It’s called the Investment Tax Credit, or ITC.
So if you spend $20,000 on new solar panels and a battery system, the next year you get a $6000 solar tax credit. Bank on it.
But beware – our procrastinating Congress has renewed the ITC several times right before it expires. The most recent renewal includes a phase-out of this tax credit. At present, the 30% credit lasts through 2019, and begins to reduce after that. So if you want to lock in your 30% off solar coupon – don’t wait much longer.
2. The ITC Is a Tax Credit, Not a Tax Deduction
The difference between these is huge. A deduction lowers your taxable income. But a credit lowers your actual tax bill. Here’s an example:
Suppose you make $80,000, pay $15,000 in taxes, and your solar tax credit comes to $5000.
If this were a deduction, it would lower your taxable income to $75,000. That would still save you money, probably around a thousand dollars.
But as a tax credit, it cuts your actual owed taxes by that amount – meaning you only owe $10k instead of $15k.
Get it? That means April will be a good month to take a vacation, because you’ll likely get a huge tax refund that year.
3. Cut Your Solar Costs in Half If You Live in a Solar-Friendly State
Some states also have solar tax credits. If yours does, you can combine your state tax credit with the federal one. So if you live in South Carolina, for example, you can take the 25% state tax credit (not deduction!) AND the federal 30% credit.
You get both.
Now, the numbers don’t work out perfectly, because the state credit will reduce your federal income tax deduction that you normally use for your state income taxes. So 30 + 25 doesn’t equal a 55% credit. But it will be close to that.
So if you live in a solar-friendly state like South Carolina, you can basically take the cost of your solar installation and cut it in half. Again – check with your accountant and state statutes to see what options are available in your state.
4. Own a Vacation Home? That Counts Too
Have a second home? As long as you’re the owner, you can apply these credits to that home too. It gets a little more complicated here, and you may not get the same whopping numbers because the feds want you to live in the home where the solar panels are installed (and yes, they have to be installed and operating to count – you can’t buy panels and put them in your garage and expect a tax credit).
The general idea is that you can claim the credit based on how often you live there. So if you spend 3 months in your vacation home, you can claim 25% of the credit you would normally have gotten.
5. No Maximum – the Clear Sunny Skies Are the Limit
There is no maximum credit.
If you have a big poultry farm or large warehouse business with tons of roof space and you install a solar system for several million dollars, you still get the entire 30% tax credit.
6. Count it All – Entire Cost of Installation Gets Included
Going solar is more than just buying panels. There’s a lot of equipment like inverters, mounting, and wiring, not to mention the battery if you want to store your energy so you have solar power during off peak hours too.
There may also be permit fees, inspection costs, and even eligible sales taxes. All these costs are included in the Investment Tax Credit. Your 30% credit is 30% of your total costs, not just the panels themselves.
7. Including Roofing!
Your roof counts too? Again, you have to do it the right way. Coastal Solar excels at helping our clients maximize their tax savings. We will help you at each step of the process and make sure you get every credit you can lay your energy bill-gutting hands on.
But if you replace your roof as part of the solar installation process, you may be able include those costs in your tax credit computations.
Roof-mounted solar panels need a strong and healthy roof. If your solar installer says you can’t install panels without replacing the roof, the IRS suggests that this cost will count as part of the 30% tax credit. However, the tax language is a little vague on this issue, and since we are not tax professionals, the only way to be sure is to consult one.
If your roof replacement is more just “good timing” but not structurally required for your panels to work, it may not be included in the tax credit. But again, this is not totally clear, so seek out a professional. It also matters how much of the roof will be covered by the solar panels.
8. Accelerated Depreciation – an Additional Tax Deduction
These last two are for businesses, which includes farms. Because the value of your system declines over time, the government treats this as a depreciation, which qualifies as a tax deduction.
They instituted a program called the Modified Accelerated Cost-Recovery System (MACRS), which has a 5 year schedule for what percentage of your solar costs qualify for this tax deduction each year. To be clear – this is a deduction, not a credit like the ITC, so it lowers your taxable income.
The first two years have the largest percentage. And this is great, because that means when you combine the MACRS with the federal (and possibly state) tax credits for all your solar installation expenses, your savings are now even higher.
But wait – there’s one more…
9. Bonus Depreciation!
To stimulate the economy a few years back, the government gave the MACRS an extra booster shot – a “bonus” depreciation. This allows for a one-time deduction of 50% depreciation in the first year. This makes the depreciation deduction even greater.
It’s Solar Time – What are you Waiting for?
This is a lot to take in. We’ve tried to summarize all the tax advantages you can access as of 2016. But you probably have questions (and you should, for a decision of this magnitude).
So contact Coastal Solar today and get your solar tax incentive questions answered.