Homeowners should meet several requirements before being eligible for a 30% Solar Investment Tax Credit (ITC), and you should decide as soon as possible since the federal energy policy will be scaled back to 26% by next year.
An Overview of the ITC
There are four mandatory requirements to avail of the ITC. The first one involves an installation that uses photovoltaic energy for more than 50% of its supply. Second, it should be functional when you file your tax papers, while the third one refers to fire and electrical safety code compliance. The last one requires an installation to have Solar Rating and Certification Corporation’s certification and rating. You could also get these from a similar entity.
As the fourth rule involves a professional certification, it only means that a solar energy system isn’t a DIY project. Whether you plan to buy a system from Sunrun or SunPower, a panel installer will be necessary. Your system should be designed for residential purposes to qualify for the incentive. You could either use a solar energy calculator or consult a professional to find out the estimate energy production.
When Will the ITC Expire?
The Solar Energy Industries Association unveiled the ITC in 2006 after Congress approved the Energy Policy Act in late June 2005. Like all good things, however, the federal government will only provide the 30% incentive for all installations within this year. The ITC will drop to 26% in 2020, 22% in 2021, and 0% in 2022 and beyond. If you have already installed one, you should submit a completed Form 5695 from the U.S. Internal Revenue Service.
The forms should be submitted along with the 1040 document to claim the incentive in the next taxable year. In other words, your submitted forms in 2019 should reduce your taxable income in 2020 provided that you met all of the requirements. Any excess amount from the ITC will be applied in the next taxable year.
Incentives Per State
You could maximize the potential return on investment from a solar panel system by knowing the available benefits provided in your home state. For instance, California is one of the states with the most number of solar-powered homes, partly because of its own reward program for residents. The other reason involves its goal by 2020 to become the first state where new houses have solar panel systems.
Some of the other states with the best solar incentives include Connecticut, New Hampshire, North Carolina and Rhode Island. Remember that the ITC doesn’t have a cap on the amount that you may claim, which means that a higher investment has a greater impact on your tax credits.
You should consult a tax expert to determine if an investment in solar energy could be beneficial for your cash flow. Once you decide on the right system, you should hire a licensed installer to make sure that everything works as intended and complies with the ITC’s requirements. Ask for at least five quotes from different professionals for better price comparison.