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Sun Starts Setting On Solar Tax Credit From Uncle Sam

The sun is shining on the tax credit for solar power, but this Federal Tax Credit that lightens tax burdens significantly starts sunsetting in 2020.


The good news is that the cost of solar panels and equipment is dropping, down about 6.5% in 2018, and putting in solar panels can cut utility bills by a lot.  The bad news of the upfront cost isn’t cheap—an average of $13,188.00 in 2018, according to EnergySage, a marketplace for solar equipment.


Luckily, federal tax credits can reduce costs.  That $13,188.00 upfront cost is from after taking the tax credit.  Far more valuable than a deduction against taxable income, a credit reduces one’s tax dollar for dollar.  Individuals should hurry in order to beat the phase-out of the credits!


Currently, the tax credit reduces the net cost of a solar system in residential and commercial properties by 30.0%.  In 2020, that drops to 26.0%, and drops again in 2021 to 22.0%.  The credit then zeros out in 2022.  The break for commercial use does remain, but only at 10.0%.


One small saving grace is that some states, local governments, and utilities also offer rebates and other tax incentives that can further lower the solar system costs.  In the meantime, while the credit lasts, qualifying expenses include the panels themselves, the wiring to connect them to home electrical systems, and the cost of labor in the installation.


If individuals don’t have a big enough tax liability to use full credit to cut their tax bill, the amount left over can be carried forward to the next tax year.  The home served by solar power does not have to be a principal residence, and no limit is placed on the dollar amount of credit, which is good for owners of large homes.


A caveat: Should individuals rent out their home for part of the year, they are required to reduce the credit for the time they are not present.  In an example from TurboTax, if one lives in a house for just three months, their credit is one quarter of the amount they would benefit by had they lived in the place year-round: For a system costing $10,000.00, the 30.0% credit is $3,000.00, but as a part-time resident and landlord get only $750.00.  Rent out the house for the entire year, and get zilch.


Certainly, some systems cost more than others.  For instance, a rectangular south-facing roof, installation is simple.  Yet if the roof is broken up by dormers, skylights and multiple levels, putting in a system is trickier, and more expensive.  Nonetheless, whatever the total cost, the shiniest deals are available now, so homeowners may want to act before the sun starts to set on solar tax credits from Uncle Sam.


Please note that the reader should discuss all strategies stated above with their accountant and/or legal advisor before implementing any of the above listed strategies.


Legend Financial Advisors, Inc.® (Legend) is not a tax or legal advisor.  It is Legend’s intention to merely present ideas and strategies to readers to discuss with their own tax and legal advisors or in conjunction with Legend’s advisors.

©2019 Legend Financial Advisors, Inc.®. All rights reserved.