If you were one of the millions of taxpayers who received a nasty surprise in your tax return this year thanks to a new limit on the amount of state and local taxes that can be deducted on your Federal tax return, there’s good news: you may be eligible to cut thousands off your 2019 tax bill by installing solar on your home.
Face it: we’d all like to pay less tax. And for many families, this tax season brought some good news. But the recent tax changes which benefited many families, landed some others with a bigger tax bill than they expected. If yours is one of those families, a little planning before the end of 2019 will make next year’s tax bill easier to swallow.
Installing solar before the end of 2019 may be a great money move: it could not only cut your tax bill next year, but also reduce your future power bills. And, on top of those financial benefits, you will be running your home on clean energy.
If you own your own home and it is suitable for solar, you have the 2019 tax year to take advantage of the 30 percent Residential Energy Efficient Property Tax Credit (REEPTC) before the Federal tax credit goes down.
The REEPTC is particularly attractive because, unlike a tax deduction that just lowers your taxable income, a tax credit directly offsets income taxes owed, possibly leaving more money in your pockets. Solar and many home battery installations are eligible for the 30 percent Federal tax credit, meaning a $25,000 home solar installation would result in a $7,500 tax credit.
This year is the ideal time to install solar as 2020 will see the REEPTC decrease to 26 percent, which in this example would reduce the tax credit to $6,500. In 2021, it will decrease again to 22 percent, and by 2022 the tax credit will no longer be available.
If you have more tax credits than income taxes owed, any unused solar tax credits are available for use in future tax years. In some states, additional state tax incentives may be available for those that invest in solar, including Hawaii, New York, and Utah (to name a few). You should ask your accountant for advice before making financial decisions.
If you didn’t get a surprise in this year’s tax season or you don’t have a large tax bill, a solar lease or a Power Purchase Agreement (PPA) may be good alternatives. With a lease, you may still be able to go solar without an upfront payment and save on electricity bills as the lease provider, such as Vivint Solar, owns the system, takes the tax credit on your behalf and builds it into your savings, and leases you solar equipment. PPAs are similar, except you pay for the power produced by system owned by the PPA provider.