09 Oct Everything You Need To Know About the Expiring Tax Credit for Solar Energy

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If you’re considering going solar any time soon, you’re going to want to pay extra special attention to the 30% federal Investment Tax Credit (ITC) and its uncertain future.

As it stands, this is one of the most substantial solar incentives out there for both commercial and residential solar power system installations, but it’s currently expected to expire on December 31, 2016. That might seem like a long ways off, but here’s why you’ll want to the start the process now.

First off – going solar takes time. It takes time to get the design finalized and a little longer to get the necessary permits, apply for rebates, etc. Right now there’s less demand, so there’s less of a backlog for Austin-area installations. and there isn’t that long of a wait. As the deadline for the ITC gets closer and closer, demand is going to skyrocket due to folks wanting to get the best deal on solar panels.

As demand increases, the timetable increases, and you might not get your system installed before the deadline and, therefore, would miss out on eligibility for the credit.

What the ITC Does for Solar Energy Projects

The distinction that’s important when looking at the federal ITC is it’s a tax credit– not a deduction. You’re not using it to determine your base income for taxation purposes; you’re using it to pay off whatever it is you owe.

So that’s a 30% credit for any solar photovoltaic (PV) system – commercial or residential – and if your system was installed after October 4, 2008, there’s no credit cap.

Typically the ITC applies the 30% to the tax basis and is eligible for panels and components, the charged installation costs of solar companies, and certain energy storage devices (batteries).

Should you want to save the credit, you have up to 5 years after installation to either partially or fully utilize it on your income tax bill.

An Example of Applying the Federal ITC

Let’s say Suzie Q wants to go solar and her proposed 10 kW (much larger than average) costs $40,000.  This includes the solar panels, inverters, installation costs – everything.

Suzie Q is also a native of Austin, Texas and heard her local utility was offering a solar incentive for eligible projects. She wants to take advantage of the Austin Energy Solar Rebate AND the federal ITC to mitigate some of her upfront costs and see a much quicker return on investment (ROI).

SEE ALSO: Taking Advantage of the Austin Energy Solar Rebate in Texas

So she’s using a $1,000 per kW utility rebate PLUS the 30% Investment Tax Credit.

First we apply the Austin solar rebate

$40,000 – (10 kW x $1,000) = $30,000 Net Installed Cost for her solar panels

THEN factor in the 30% tax credit

30% x $30,000 = $9,000 she can then use to pay her income taxes.

So her total incentive amount is the $10,000 from the rebate plus the $9,000 from the tax credit.

Just like that Suzie Q trimmed almost HALF of her installation costs by taking advantage of utility and federal solar incentives.

Who is eligible for the Investment Tax Credit?

As long as your system is “placed in service” between January 1, 2006, and December 31, 2016, your system should qualify. This just means construction has been completed, your utility has approved it being connected to the grid, and its ownership has officially changed hands.

Ownership of the system is the key requirement (sorry no leases or Power Purchase Agreements). It also has to be for a system installed at a residential location though it does not necessarily have to be your primary residence. The solar components also have to be new and not previously used in another installation.

What Makes the ITC so Important for the Industry?

That’s an easy one – it’s essential for growth. Since its inception almost a decade ago, the federal investment tax credit has grown the number of U.S. solar installations by more than 1,600%.

The ITC has served to – year after year – drive the cost of solar panels down while promoting energy savings and renewable competitiveness. A boost to the solar industry means economic growth, job growth, and, above all, a reduction in the harmful amounts of carbon dioxide in our atmosphere.

There is still the possibility that the ITC will be renewed before its expiration date, but I wouldn’t bank on it. Should the credit not be renewed end-of-year next year, the industry faces a lot of uncertainties, as does the relative pricing for solar panels and related component.

So if you’ve even remotely considered going solar in Austin, now is the time. The sun is setting on the Austin Energy Solar Rebate, and delaying too long means more upfront cost and the possibility of missing out on a 30% tax credit.

Be sure to download your free copy of the Ultimate Guide to Going Solar in Central Texas. It contains helpful rebate information, solar FAQs, and the useful information you need to start saving money on your utility bills.