How to Claim Solar Tax Credit: What is the refund about?
The Solar Investment Tax Credit (ITC) is a dollar-for-dollar reduction in federal income tax for anyone who purchases solar panels for their home or business. Here at Del Sol Energy we cut through the confusion on how to claim solar tax credit on your next tax filing. The amount credited is equal to 30% of the purchase price of your solar system.
- It’s not a Rebate or cash refund paid back to you by the State or Utility company.
- And it’s not a Tax Deduction (which reduces your total income and thereby decreases your tax bill by a small amount).
It’s a direct reduction in the dollars that you don’t have to pay the IRS, or that the IRS will refund to you in April if you’ve overpaid.
The Investment Tax Credit was set to expire at the end of 2016, but it was extended in December of 2015. It will retain the 30% rate until 2019. In 2020, it will fall to 26% and then down to 22% in 2021, after which it will remain at 10% for commercial solar and drop down to 0% for residential projects.
How Does it Work?
This is how it works: Let’s say you purchase a system for $23,000. Take the net cost, which is the price you paid less any other credits, and multiply that by 30%. $23,000 x 0.30 = $6,900. That’s $6,900 that you don’t have to pay the IRS, or that the IRS will refund you in April if you’ve overpaid.
As always, please consult with your tax professional if you’re unsure if you qualify or not. You could mention IRS Form 5965 to your CPA or tax adviser.