Claiming the Federal Solar Tax Credit: 3 Important Facts Posted on 06 Jan 07:00
The federal solar tax credit has been instrumental in driving growth in the photovoltaic industry. Thanks to this attractive financial incentive, homeowners can save thousands when making the switch to renewable solar electricity.
Even though the solar investment tax credit (ITC) has been around for 10 years, the program still confuses many, partly due to inaccurate and deceptive information circulated by unscrupulous photovoltaic sellers.
If you want to make sure you can claim the lucrative federal credit for going solar — and you do! — it’s important to understand how the program works.
The Federal Incentive Is a Tax Credit (Not a Rebate)
The federal solar ITC can save you 30 percent on a home photovoltaic system. But Uncle Sam is not going to send you a refund check. The ITC is not a tax rebate — it’s a credit, which works differently. Credits reduce your tax liability, or the amount of money you owe on your tax return.
To benefit from the solar ITC, you need to owe the IRS money. Until you do, you can’t claim the solar tax credit (or any other tax credit, for that matter).
The Federal Solar Tax Credit Must Be Calculated on Net Cost
When claiming the federal solar ITC, you must calculate the total from your net system price, not the gross costs.
You are allowed to include any expenses related to the photovoltaic system, including installation and wiring costs. After adding up your total costs, subtract the amounts of any rebates or other financial incentives you received. That’s how to determine your net system cost.
When you do the math, you can see how this distinction has an impact on the amount of your solar ITC. While it may be tempting to claim the gross total, the IRS will consider that double-dipping, and you could be penalized.
You Can Claim the Federal Tax Credit Over Time
Anyone who owes taxes can claim the solar ITC. But what if you owe less than the amount of your credit? Do you lose out on the rest?
Not at all. Anything left over after covering your tax liability can be rolled over and claimed on next year’s income tax return. And, if necessary, any remaining credit can be claimed in future years, as long as this federal solar tax incentive is in effect.
Your accountant or tax professional can advise you on how to derive the maximum benefit from the solar tax credit. You can also learn more about it from the Solar Energy Industries Association (SEIA) website. Or you can call the experts at Solar GOODs for more information.
Do you have questions, or would you like help completing your ITC paperwork? Solar GOODs, your DIY photovoltaic superstore, offers professional document preparation at a nominal cost. Contact us or visit our website today to learn more, and to make sure you get the maximum federal solar tax credit for your DIY photovoltaic installation.