The current COVID-19 pandemic has already caused tremendous stress, illness, and economic disruption in the United States and internationally. In an attempt to mitigate some of the issues brought about by the Novel Coronavirus, the federal government and Minnesota state governments have both postponed the tax deadlines this year; if you live in Minnesota, yours are now due July 15th.
If you’re a new residential or commercial solar panel user, this tax deadline is very important. When you file your taxes for 2019, you can claim the solar investment tax credit (ITC) to recoup some of the money you spent installing your solar energy system. The Solar tax credit allows you to deduct 26% of the installation fees for your system from your tax bill for the year. For the average consumer, that amounts to a savings of $9,000 on their new sustainable energy system.
A Brief History of the Federal Solar Investment Tax Credit
The ITC was originally established back in 2005 by the Energy Policy Act. It was set to expire in 2007, but Congress has decided to extend its expiration date several times due to its popularity with American consumers. Now, it will be available to new solar energy users until 2021. However, the percentage of the project you’re permitted to deduct has been decreasing since the end of last year.
If your solar energy project was completed in 2019, you are eligible for a higher credit – 26% of your total expenses. However, any projects completed in 2020 will only be eligible for a 22% credit. Similarly, in 2021 the tax credit will only be worth 10% of the total installation costs– and only for commercial clients. If you were lucky enough to have your project completed last year, make sure to file your taxes by the new extended tax deadlines to recoup the full benefits of this 26% tax credit! And if you’re interested in completing a solar project in 2020 before the rebate percentage drops even further, contact the Cedar Creek Energy team to get started.
Here’s How to Be Sure You Qualify for the ITC
The criteria for qualifying for the federal solar tax credit are straightforward. You must have installed a solar energy array on your residential or commercial property in 2019. You cannot have signed a solar panel lease or a power purchase agreement (PPA) with a solar installer, since in such a case you would not be the owner of the solar panels. However, you can claim the credit if you installed the panels on any residential property you live in for some portion of the year, even if it’s not your primary residence. That’s it! Those are the only criteria for receiving this credit.
How the Federal Solar Tax Credit is Applied
Once you’ve filed your taxes by the new deadline of July 15th, the IRS will compare your tax liabilities for 2019 with the solar tax credit you’re receiving. It’s important to note that the ITC will be applied to those tax liabilities instead of being sent to you in the form of a refund. If you don’t have enough tax liability to claim the entire investment tax credit in one year, you are allowed to “roll over” the savings into the next tax year. However, if you do not generally owe taxes at the end of the year, the ITC won’t change anything about your refund.
Make the Most of the Investment Tax Credit
With the economic uncertainty of the COVID-19 fallout looming, the solar investment tax credit is a great way to “stress less.” It has the potential to decrease your tax obligations substantially, so you can use your hard-earned money to ensure your own economic stability in the midst of unsure times. Make sure to file your taxes by July 15th to receive your ITC!
If you’re interested in receiving a tax credit but have yet to install your solar energy system, 2020 is a great year to do it! You can still receive a substantial rebate if your system is completed this year. Contact our team at Cedar Creek Energy to learn more about installing a residential or commercial solar energy system in Minnesota.