30% Tax Credit Reduces Cost Of Residential Solar…For Now

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Solar energy has had many record-breaking years recently. The price of components has plummeted, production has ramped up, and the U.S. has an attractive federal tax credit that takes a big chunk out of the cost of a solar system. If you are thinking of going solar soon, it is wise to do so before the tax credit expires at the end of 2016 (unless congress passes legislation to extend it).

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Image courtesy of Rob Rudloff.

The federal government offers the Residential Renewable Energy Tax Credit, a 30% credit for people that purchase a solar system for their home. If your total system cost is $10,000 (including eligible solar components and labor), you can quality for a 30% tax credit valued at $3,000. Homeowners simply need to complete form 5695 in order to  claim these residential tax credits. A tax credit is more valuable than a write-off, as a tax credit is a dollar-for-dollar reduction in taxes owed.

For example, if you owe $5,000 on your federal income taxes, a $3,000 tax credit reduces your tax burden to $2,000. People who do not owe federal taxes however may have difficulty claiming the tax credit and might be better off leasing a solar system because the company leasing the system can claim the tax credit and typically factors this into the cost of leasing a system.

Previously there was a cap on the eligible tax credit. However, this was removed with the American Recovery and Reinvestment Act of 2009. Solar electric (photovoltaic), solar hot water, geothermal heat pumps, and small residential wind energy systems all quality for the credit.

The anticipated end of the federal solar tax credit does create legislative uncertainty in the solar industry. The wind energy industry has experience boom and bust cycles due to the present then vanishing production tax credit. Experts don’t always agree on the importance of the tax credit to the growth of the solar industry. For example Camilo Patrignani, the CEO of Greenwood Energy called for a 10% tax credit during 2018 and then an then ending in 2019 to avoid boom and bust cycles.

Regardless of the exact future of the incentive, the tax credit is available now, making solar energy far more affordable.

Feature image courtesy of Rob Rudloff

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Sarah Lozanova
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Sarah Lozanova

Sarah Lozanova is a renewable energy and sustainability journalist and communications professional with an MBA in sustainable management. She is a regular contributor to environmental and energy publications and websites, including Mother Earth Living, Earth911, Home Power, Triple Pundit, CleanTechnica, The Ecologist, GreenBiz, Renewable Energy World and Windpower Engineering. Lozanova also works with several corporate clients as a public relations writer to gain visibility for renewable energy and sustainability achievements.
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