The Future of the Solar Tax Credit – 2020 and Beyond
The solar tax credit has stood at 30% for a number of years. However, the credit has begun stepping down as the cost of a solar system drops and the industry matures.
What is the Tax Credit in 2020?
In 2020, the tax credit drops to a still substantial 26%. This covers both residential and commercial solar energy systems. It only covers purchased systems, not leased ones. This means that if you are under a PPA, you cannot claim the credit.
Because the federal tax credit will drop again in 2021 and disappear for residential purchasers in 2022, now is a good time to buy a new solar system if you can, rather than putting it off another year or two. You will still be able to claim a 10% commercial credit if you have a home-based business after the residential credit sunsets completely.
How Can you Claim the Credit?
You claim the credit when you send in your tax returns. As it’s a credit, not a deduction, you subtract the amount of the credit (26% of the cost of your system) from the tax due. In the past, if the credit has been more than you owe, you have been able to carry it over. However, this will stop after 2021. The system is eligible on the date it is “put in service,” that is complete, albeit not necessarily turned on.
The credit comes off of the bill for the system (there is no cost limit) minus the sales tax. So, it includes installation, labor costs, roofing repairs, tree removal, etc.
The tax credit is an incentive to buy, rather than lease your system, but there are other advantages to buying, especially when it comes to the resale value of your home.
Why is the Credit Going Away?
The reason the credit is going away is because the government feels that solar systems are now common enough that an incentive is not needed. Also, the price of solar systems has decreased dramatically. In fact, the cost has dropped by over 70% in the last ten years. This is increasing the number of people who can afford to buy solar without needing a tax credit. In 2010, the average price of a residential system was $40,000, whilst in 2019 it had dropped to $18,000.
The incentive is, thus, no longer considered necessary. In fact, it was originally meant to sunset in 2016, but Congress extended it by another five years.
Solar companies have been campaigning for another extension, and the industry is concerned that without a replacement, installations will slow down. This also affects companies who lease solar panels, as they were previously able to claim the tax credit and pass the reduction in costs on to their customers. Without the tax credit, thus, the price of leasing panels will go up.
The Renewable Energy Extension Act was presented to Congress in late July of 2019, intended to extend it another five years, but the bill remains in limbo. Current politics make it less likely that it will be extended again despite industry lobbying.
Additionally, many utilities and traditional energy providers are campaigning against an extension, as they don’t want people switching to solar. Unfortunately, these industries are still living in the past, but they also have a lot of money to bring to bear despite the fact that coal plants are likely to be retired at record pace over the next ten years.
Are there Other Incentives You can Claim?
So, let’s say you missed the boat on the federal tax credit, are there other government incentives to going solar?
Many states have their own incentive program, some of which will continue. Here are some examples:
- Virginia: Solar Energy Equipment Tax Exemption. This provides a reduction in property tax in certain counties in Virginia for homes which have solar equipment installed.
- Maryland: Residential Clean Energy Rebate Program. Homeowners can apply for a Clean Energy Rebate, which gives access to limited funding on a first come first served basis (thus, it’s advantageous to install early in the fiscal year). The rebate is currently $1,000 and you have to use a certified installer.
Some power companies also offer incentives for a solar energy system connected to the grid. It’s worth checking with your utility and also with your city and county to see if they have any incentives you might be eligible for. You should take into account all of these incentives when deciding when to install your system and whether to buy or lease. Buying is better than leasing in the long term, and it’s worth considering a loan to cover the up front costs. A good contractor will know what incentives are available in your area and will be able to help you apply for them.
Will There be Other Incentives in the Future?
While the current political climate makes it unlikely that the current tax incentive will be extended, many are campaigning for new incentives. The wind industry, rather than campaigning for a renewal of their own tax credits are pushing for carbon taxes on coal and gas plants, although this seems even less likely to go through in the current climate.
It is not impossible that the federal tax credit will get a last minute reprieve. Despite the loss of the incentive, many experts still predict a massive switch to solar energy in the 2020s. And, of course, the political climate can change at any time, with ideas such as the Green New Deal getting wider circulation. There is likely to be a push to restore the incentive if new solar installations tail off, although whether it will be strong enough to fight off attacks from coal and gas providers is uncertain.
If you are considering installing solar on your home, then you should do research to see what incentives you can get. Now is the time to take advantage of the 26% federal solar tax credit before it expires, but there may also be other ways to reduce your costs.
About Mountain View Solar
Mountain View Solar is your local West Virginia, Virginia, Maryland and Pennsylvania solar and energy efficiency contractor. Our primary products include solar energy systems and battery backup for critical loads. In addition, our trained team of professionals can discuss efficiency upgrades that in combination with solar can not only reduce your carbon footprint, but substantially increase the overall ROI for your solar energy system. We can even recommend trusted contractors for your appliance upgrades.
mtvSolar has always been a leader in green energy initiatives. We started our journey as premier builders of energy efficient homes before making the shift into renewable power generation. We take energy efficiency and green energy initiatives very seriously and will help maximize the impact of your new solar installation.
To find out more, contact mtvSolar today for a zero-pressure consultation and estimate.