There has been a lot of talk about the renewal of a popular solar tax credit as part of the 2015 “omnibus spending bill” in congress. It’s been covered by industry news sources as well as mainstream media outlets, so we decided it might be time to answer some of your questions about what the solar tax credit is, how it works, and what it might mean for your pocketbook.
We’ve prepared two posts to answer all your solar tax credit questions. Click on a button below to go to the relevant post:
Without further ado, here is our solar tax credit FAQ:
- Q: What is the solar tax credit?
- A: Officially called the “solar investment tax credit” or ITC, it’s a dollar-for-dollar reduction in the federal tax bill of any homeowner who pays for a solar installation.
First enacted in 2005 and renewed in 2008, the ITC is offered by the U.S. federal government for homeowners and commercial solar businesses to make solar more affordable.
- Q: How much do I get back from the solar tax credit?
- A: 30% of costs, through 2019.
If you’re a homeowner who buys a solar panel system, you’re entitled to a tax credit of up to 30% of the total cost of that system. You can wipe out your entire tax bill if your credit is high enough, and you can take the credit over 2 years if you don’t owe that much taxes. For example, if you spend $20,000 on a solar system, your 30% tax credit would be $6,000. But if you only owe $4,600 in taxes for 2015, your tax bill will be reduced to zero, and you’ll receive an additional $1,400 tax credit on your 2016 return.
- Q: Will the solar tax credit expire after 2019?
- A: Nope! The residential solar tax credit will continue at 30% through the end of 2019, then “step down” to zero after 2022.
Here’s what that looks like:
- Q: How do I claim the solar tax credit on my 1040 form?
- A: Check out our post about that right here.
Claiming the credit is actually really easy, and like we mentioned above, it can wipe out your entire tax bill. Wow!
- Q: Why are we subsidizing solar anyway? Shouldn’t the industry stand on its own two feet?
- A: Lots of businesses get subsidies from the government, and solar is one of the most important future planning technologies there is!
We subsidize solar because it’s a key part of our nation’s plan to get off fossil fuels and help make a more reliable, sustainable energy future. But the ITC does more than that; the taxpayer investment in solar creates jobs, reduces prices for solar for everyone, and ensures this still-new industry grows large enough to sustain itself for long into the future.
Check out this handy graphic from the Solar Energy Industries Association (SEIA):
That’s a lot of benefit for our tax dollar investment, but it doesn’t even tell the whole story. A study conducted a few years ago by the U.S. Partnership for Renewable Energy Finance found that a dollar invested in reducing the cost of solar today returns an annual rate of 10% over a 30-year term, if you account for tax revenue from jobs created and leases and Power-Purchase Agreements (PPAs). That’s a huge rate of return, even as solar also saves homeowners money by reducing their electricity bills over 25 or 30 years!
And here’s another graph to put things in perspective a bit. The world’s top 20 countries by economic power (aka the G20) spend almost 4 times the amount on oil subsidies as the entire world spends on subsidies for renewable energy. Check out this chart:
We hope you enjoyed reading our solar tax credit FAQ. Please feel free to pose additional questions in the comments section below, and we’ll incorporate the best ones in the body of this post.
Head on over to our post about how to claim the ITC: