Go Solar This Summer for Tax Savings!
Most tax breaks for energy efficient home improvements were abolished by tax reform, but going forward homeowners can still take a credit for solar electric and solar water heating improvements. You must act soon, because although the Federal Solar Tax Credit does not expire at the end of 2019, it is reduced every year from 2020 until it disappears for homeowners on December 31, 2022. Also known as the Investment Tax Credit (ITC), it allows the deduction from your federal taxes of 30% of the cost of installing a solar energy system. The ITC applies to both residential and commercial systems, and there is no cap on its value!
There are 2 major advantages of installing solar – first the impact on your energy bill will be substantial, and second, for 2018 and 2019 the tax credit can reduce your tax bill by 30% of the amount you pay to install solar on your home. Not only that, but you can take the credit over multiple years if you don’t have enough tax liability to claim the entire credit in one year. You can “roll over” the remaining credits into future years for as long as the tax credit is in effect.
The residential solar tax credit will continue at 30% through the end of 2019, then “step down” to zero after 2022. The step down is as follows: 26% in 2020, 22% in 2021, and 10% in 2022. (The permanent 10% credit after 2022 will be given only to companies who install and maintain solar systems and sell the power to another entity like homeowners, businesses, utility companies, etc.) Remember that if you sign a lease with a solar installer you are not the owner of the system, and thus you cannot receive the tax credit.
It’s easy to claim the tax credit for installing solar panels on your home. You will need the receipts for your solar installation, and a Form 5695 (Residential Energy Credits) in addition to your Form1040.
Investigate state tax breaks for “going green” as well. Generally they can be split into two categories: “renewable” and energy efficiency. Renewable energy could be something like adding the solar panels to your home while energy efficiency would be new windows or new energy saving appliances. Most states and even many local governments have some tax break for these types of items, and the best part is that state tax incentives can be used in addition to federal tax breaks for energy. State programs are very specific and can differ widely, but the three main types of tax breaks are: sales tax exemptions, income tax credits or deductions, and property tax rebates or exemptions. Income tax credits for going green are available in 22 states. Property tax exemptions for renewable energy can be found in 32 states.
Got questions? We have answers! Tax reform has impacted many tax breaks previously enjoyed by homeowners over the years. Contact the professionals at Fuoco Group to be sure you are not paying more than you should to Uncle Sam. July is the perfect time for a mid year tax check-up. Phone toll free: 855-534-2727.
