Solar Tax Credit – The truth about the Investment Tax Credit
US Solar Institute Explains the ITC
FOR IMMEDIATE RELEASE – Fort Lauderdale, FL, August 2019. The US Solar Institute, South Florida’s premier and dedicated, explains in detail the investment tax credit. The widely known solar installer gets calls every day from potential solar customers in Broward, Miami-Dade, and Monroe counties asking for clarification on the renewable investment tax credit. The investment tax credit will be explained in detail in this press release, and we urge people read it and understand it.
To begin with, the investment tax credit is a credit; it is not a deduction or adjustment. This is not a reduction in the cost of the solar system. When presented with quotes from different solar contracts, please keep an eye out for the “incentives to customers” or something alike. It will typically look like this, and these are just examples:
Gross cost of system: $25,000
Incentive to customer (30%): $7,500
Net system cost: $17,500
This can be very misleading. For someone who does not understand how this work, it can easily be misconstrued as the “incentive” to be a reduction in the system cost, and your actual expense will be $17,500 (in this example). The contractor is not reducing your system cost by $7,500. Your out-of-pocket cost will be $25,000. The 30% “incentive to customer” is the amount of eligible tax credit the IRS recognizes. The solar panel construction company is not going to generously give you 30% of their profit because they like you. The example’s incentive and net cost are to show maximized tax credit utilization.
As of 2019, the IRS recognizes 30% of the installation cost as a tax credit. Starting 2020, the credit will go down to 26%, and 22% in 2021. As of 2022, there will be no residential tax credits at all. The system cost will be whatever the contractor proposes and that’s it (unless there are other local incentives not to be confused with tax credits).
Now that we have explained the misleading nature of what some solar contractors present as an incentive, let’s explain the tax credit. A tax credit is a dollar-for-dollar credit given to any outstanding balances due to the IRS. For example, a person owes the IRS $10,000, and they are eligible for $7,500 worth of credits because they went solar. They now owe the IRS $2,500 ($10,000 – $7,500). If you do not owe enough money to the IRS, they will not be sending you a check for the balance of your tax credit. Another example: someone owes the government $4,500. They use up $4,500 of their credits and have a balance of $3,000. The IRS will NOT be sending anyone a check for $3,000. If not used all at once, the renewable tax credits can be carried over to the next year(s).
Here comes the magic question that everyone asks The US Solar Institute: “how long can I carry over the tax credits?” We have heard “you can carry them for two years”. We have heard “you can carry them for five years”. We have even heard “you can carry them up to 15 years”. The answer, guys, is we don’t know how many years you can carry the credits forward. The IRS has not specified it. Taken straight from the IRS website, “A taxpayer may not carry forward the § 25C credit. Thus, if a taxpayer cannot claim all or a portion of the credit in the year in which the related expenditure is treated as made, the unused amount of the credit will expire. However, a taxpayer may carry the § 25D credit forward to future tax years pursuant to § 25D(c).” [i] Section 25D addresses the credit for qualified expenditures made by the taxpayer for residential energy efficient property. This is the section that addresses tax credit carry forwards, and as you can see, it does not efficiently address the question “how many years can the credits be carried?” So, with the correct answer found, do not think that you can carry them two, five, 15, or 20 years. Always keep in mind that the IRS may rule on something and have unexpected results.
The IRS may choose to recognize your full tax credit amount until you use it all up. They may choose to change the section and only allow credits to be carried over for one year. They may choose to not recognize them after 2022. No one knows what they will do with them. Do not completely trust what the salesperson is saying because it is likely that he or she does not know! US Solar Institute’s suggestion is to consult with a real tax professional and get proper and educated guidance on how to financially benefit from this tax credit!
About Florida Solar One: US Solar Institute is Florida’s dedicated solar installation college located in South Florida. They can be reached at 954-236-4577, emailed at info@ussolarinstitute.com, or visited at 2341 NW 30th St, Oakland Park, FL 33311.