4 Things to Know About the Federal Solar Tax Credit in 2019

By Tim Henderson

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Last Updated on

May 14

The federal solar tax credit: it’s been a critical part of renewable energy access for U.S. households for years. Approved as a part of the 2016 federal spending bill, the solar panel tax credit extension took the existing solar tax credit and extended it for five years.

This effort made solar power more affordable for Americans who wanted to install residential or commercial systems. Some changes are facing the federal solar tax credit in 2019, though, and the program will undergo major shifts in the coming years.

Here’s what you need to know.

The History of Federal Solar Tax Credit

Wondering how the ITC got started? It was born with the Energy Policy Act of 2005. Initially, the ITC was supposed to expire within two years – by the end of 2007. The program had enjoyed a considerable measure of success, though, so lawmakers granted a series of extensions that promised to keep the program alive until the end of 2016.

By the end of 2015, the solar industry was booming, the national focus on solar and renewable energies was growing, and lawmakers believed that extending the program even further would allow the solar industry to reach its full potential. As it turns out, they were right. The U.S. solar industry has grown by more than 8,600% since the ITC emerged in 2006. That’s an average annual growth of 50% in the last ten years alone.

Changes to the California Solar Tax Credit in 2019

The federal solar tax credit is also known as the solar investment tax credit or ITC. The solar investment credit allows users to deduct 30% of the installation costs associated with their solar energy systems from their federal taxes for the year of installation.

While many people believe the ITC only applies to residential solar systems, it also extends to commercial systems, and there is no cap on its value. Today, the average cost of installing a solar panel system is about $18,300. That means the federal solar tax credit can save some customers upwards of $5,000 on the cost of going solar. With this in mind, it’s easy to see why the ITC has become so popular.

As it stands now, the tax credit is available until 2021. The structure of the program is changing, though, and claim amounts are decreasing in the coming years.

  • The ITC currently grants a 30% tax credit for residential systems and commercial properties. This 30% credit is slated to last through the end of 2019 and is an excellent way for people interested in investing in solar power to save big on their systems.
  • ITC claim amounts are decreasing gradually between 2020-2022.
  • In 2020 the tax credit drops to 26%. In 2021, it reduces to 22%. By 2022, commercial and utility customers will only be able to claim a 10% credit, and residential users won’t be eligible for any credit at all.

How Can I Claim the Federal Solar Tax Credit in 2019?

If you’ve heard about the solar tax credit but not yet taken advantage of it, you probably have questions about how to claim the credit in 2019, or if you’re even eligible. Here are four facts you should know:

  1. You can roll over the credits. If you don’t have the necessary tax liability to claim the full credit for your system in a single year, the law allows you to roll the leftover credits into tax credits for future years, as long as the federal tax credit is still in effect.
  2. You can now claim the credit as soon as your system is complete. Historically, the tax credit has only been available to the owners of operational systems. Today, though, you can claim the credit as soon as crews complete the construction of your system, just as long as the panels are up and running by December 31, 2023. For more information, read the IRS’s guidelines regarding the requirements for “commence construction” standards.
  3. You must own your system to claim the credit. If you lease your system from an installer, you are not considered the legal owner of that system, and will not be able to claim the tax credit.  
  4. You must fill out IRS form 5695. Applying for the ITC is as easy as filling out IRS form 5695, and then adding the energy credit information to the form 1040 you complete at the end of the year.

The Commercial Solar Tax Credit in 2019

Here’s a critical consideration for anyone considering a commercial solar project in 2019: you can preserve your 30% tax credit until 2023. This means that as long as you invest the minimum of 5% into your project by the end of 2019, you’ll be able to carry the 30% tax credit over into the next year.

Available to both commercial and residential users, the solar tax credit is a fantastic program that makes solar installation more affordable for those interested in it. With that in mind, don’t delay your solar installation. All you have to do to get the credit is invest 5% of the project value by the end of the year

If you’re thinking of going solar and you live on the Central Coast or in the San Francisco Bay area, contact us today to get a quote for your project.

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About the Author

Tim has worked in the solar industry since 2008. He has a Master's Degree in Energy Resources Engineering from Stanford University. His years of experience include working on solar energy projects for both homes and commercial properties. Tim enjoys sharing his knowledge of this evolving industry and making a difference in his community.