DON’T MISS YOUR SOLAR TAX CREDIT
(This credit applies to purchased projects only)
The 30% Federal Investment Tax Credit (ITC) for solar and other alternative fuel projects has had it’s supporters and detractors since it’s inception in 2006. Time has shown it can claim much of the credit for moving the solar industry from a startup player to its current status as an energy industry major player and disrupter of the status quo.
The ITC reduces the net cost of purchasing a solar power system. It does so by generating the buyer a 30% tax credit off the full purchase price of the project. A $30,000 system would = $9,000 in tax relief, $20,000 = $6,000 in tax relief and so on. If that 30% is more than the buyer’s tax liability, the balance of tax credit can be forwarded to the following year’s tax liability. This Federal program is a rare piece of successful bipartisan legislation and is about to reach its end.
HERE’S WHAT YOU NEED TO KNOW
The tax credit percent is being reduced in steps listed below and then eliminated.
30% for systems placed in service by 12/31/2019
26% for systems placed in service by 12/31/2020
22% for systems placed in service by 12/31/2021
Systems must be placed in service before December 31, 2021
The definition of “placed in service” has qualifiers. The IRS has recently clarified two ways to comply before project completion under the qualifier of “commence construction”.
1. Physical Work Test = physical work of a significant nature has started that will continue to project completion (racking, electrical work, no site prep qualifies)
2. 5% Safe Harbor Test = you have paid 5% or more of full cost of system being installed and can prove more paid in a timely manor towards completion of project
Realistically, it does take time to move from a signed contract to the beginning of construction of your project. Your vendor needs to be very forthright about the timeline they give you. Vendors are always under pressure to complete all their projects by 12/31 of whatever year your contract is signed. The earlier in the year you get a signed contract, the better for everyone. Winter is the best time to hire a solar company. You should get the best prices as vendor work load is usually on the soft side, you will likely have your system running by the best months for solar production and you can easily prove your eligibility for the ITC tax credit. The time is now to solidify your plans to go for clean, cheaper renewable energy with the help of the ITC!