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Solar Energy Tax Credit - Should you go solar?

Updated: Feb 17

This is a nonrefundable credit, so you're not going to get a tax refund for the amount of the tax credit that exceeds your liability. It will only work to reduce the tax owed to $0. However, it is possible to receive a refund as a result of claiming the credit due to federal withholding, and the credit reduction of the liability. If you don't use your entire credit in the first year, there's no need to worry. The credit can carry forward until the end of the program which is December 31st, 2034.

With fossil fuels in the cross hairs, Federal Tax Credits have become available to incentivize renewable energy investment- specifically solar energy. Many are still crunching numbers to determine if the $50,000-80,000 investment is right for them. Improved technology has enabled people to capture more of the sun's energy, and it’s made taking full sized homes off grid a real possibility. But with such a lofty price tag one would hope for a substantial credit to help offset some of the expense. The good news is that the credit is fairly substantial.



Solar Tax Credit

The amount of the credit is a percentage of the total improvement expense in the year of installation with no annual maximum or lifetime limit. The credit was scheduled to be reduced to 22% in 2022 but the Solar Investment Tax Credit was changed to increase the amount to 30%. The credit is tiered down until phasing out in 2034 unless any changes are implemented.


2020 to 2021 the credit amount was 26%

2022 to 2032 the credit amount is 30%

2033 the credit amount is 26%

2034 the credit amount is 24%


Will I Get a Refund

This is a nonrefundable credit, so you're not going to get a tax refund for the amount of the tax credit that exceeds your liability. It will only work to reduce the tax owed to $0. However, it is possible to receive a refund as a result of claiming the credit due to federal withholding, and the credit reduction of the liability. If you don't use your entire credit in the first year, there's no need to worry. The credit can carry forward until the end of the program which is December 31st, 2034.


Taxpayers will file Form 5695 to claim the credit on their Tax Return.


State Credits

Many States have a form of incentive for solar energy. The State of Colorado, where I live, does not currently have any solar incentives, however, some local municipalities may offer incentives in the form of county property & sales tax credits or rebates. Be sure to check with your local municipality to see what’s available.


Performance

Overall, performance will depend on the quality of sunlight and duration. The best source of information I found for someone just getting into it is a YouTube Video called, “5 Years with Solar Panels – Is It Still Worth It?” It follows the journey of Matt, who purchases solar 5 years ago and had a Tesla Power Wall installed to increase his performance. He shares his good experiences, and what he would have done differently.


Fly-by-Night Installers

The biggest struggle that many have moving forward with solar is getting a decent installer. Many installation companies are here today, gone tomorrow. With such an investment you just can’t put trust in someone who will be doing something completely different in a year. When you do find a company with a really good rating, they’re booked out a year or more.


Time

When it comes down to it a lot depends on the time that you expect to live in your home. The 30% Tax Credit is going to be around awhile, so eventually getting on the wait-list for decent company to do the installation will be available. So, take your time, don’t rush into it with a fly-by-night outfit that will leave you with regrets.



Other Things to Note


Solar Roofing Tiles

Per Form 5695 Instructions, “Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors.” These dual-purpose shingles qualify for the credit!



Peak Shaving

A practice where local utilities use some of your stored energy during peaks times in the grid, and they pay you for it! Matt, in the video referenced above, received $722 in 2022 & $736 in 2023.


Snow Guards

When you live in areas that experience a high volume of snow you should be aware of the potential for the snow to come rushing off the roof, burying anything below. Snow Guards have been developed to prevent this risk.



Rental Properties

Yes, a rental property may be eligible, but for only the portion of the year that you live in the property in the year of installation. The credit is prorated based on that percentage. So, staying in a rental property for longer periods during the year of installation would result in a greater percentage available for the credit.


The Decision

Currently my Wife & I have decided that an investment in solar is worth it. We live in Colorado with a Southern facing roof that is open to the sun. We consistently see full sun most days, and when the clouds roll-in, they stay a couple hours and are gone. Also, the thought of being able to run the home when traditional electricity fails is very comforting. With electricity consistently on the rise year after year, and the cost of propane to heat our home in the winter, it was an easy decision. Tipping the scales is the 30% Tax Credit. With our plans to stay in the home the next 30+ years we are confident that our investment will be repaid, and one day we will enjoy completely free electricity.



Book a Free Discovery Appointment

See if Rangeview Tax & Accounting is a good fit for you with a Free Discovery Chat! We offer in-person, on-site, and telephone discovery chats. On site chats are typically business with exceptions available under appropriate circumstances for individuals.



Book a Paid Consultation

Our paid consultation is $50 and puts you on the line with a tax professional who will answer questions that you have related to IRS Code, and Tax Strategies. Pay for your consultation, select one of the available appointments, and provide the general topic of discussion or questions that you wish to discuss. If you choose to move forward with our services, we will credit the consultation fee towards a future tax return preparation.


Tax Projections

Stay on top of the upcoming filing season with a tax projection! We will collect various data including current pay stubs, expected business income, and more extraordinary situations like selling a home, rental, or business. From there we annualize the figures and run a mock tax return to get a good idea of an expected tax liability. This gives us a baseline in which we can further advise tax planning strategies that may apply.




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