2019 Update: Solar Energy Qualifies for 30% Federal Tax Credit
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Make it a Sunny New Year!
There is bright news for both homeowners and businesses who are ready to make 2019 the year they finally go solar – a full 30% federal tax credit (the last year this remains in place) and the lowest solar panel prices ever, make 2019 the best year to go solar, ever!
- Despite a small bump in the road due to Trump’s tariffs, pricing on solar panels is the lowest it’s ever been (in fact, solar panels have declined in price 99% in the last 40 years).
- The uncapped 30% federal tax credit on residential solar electric (PV) systems remains in effect through 2019. After 2019, there are scheduled step-downs in the tax credit amount.
- In 2019, businesses can get a 30% federal investment tax credit in addition to state rebates.
- Businesses can also take bonus depreciation on solar projects, accelerating the return on investment even more.
Read on for more specifics about each incentive.
Disclaimer: ReVision Energy provides this for educational use only, we are not tax professionals and are not offering tax advice. We recommend all solar customers to consult with tax counsel.
Federal Solar Tax Credits & Incentives
Residential 30% Federal Tax Credit
The 30% federal tax credit is called the “Residential Renewable Energy Tax Credit” and was established by the federal Energy Policy Act of 2005.
This credit was initially capped at $2,000 for solar energy systems but was expanded by The American Recovery and Reinvestment Act of 2009 to be an uncapped credit for 30% of the cost of a renewable energy system (both photovoltaic and solar thermal are eligible, along with small wind and geothermal heat pumps). Also, the IRS has issued guidance suggesting that battery storage systems, when charges with electricity from solar electric arrays, are eligible for the tax credit.
The 30% includes all cost of labor as well as equipment costs for the renewable energy system. The credit can also be carried forward to future tax years if you cannot take the full credit in the year the system was installed.
The credit was originally scheduled to be discontinued year-end, 2015, but was extended, with the following timetable:
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
- A homeowner claims the 30% credit on IRS 5695, Residential Energy Credits (PDF)
- The Solar Energy Industries Association has a great solar federal tax incentive FAQ
- Also, see DSIRE – Residential Renewable Energy Tax Credit
Business Energy Investment Tax Credit (ITC)
Businesses, as well as homeowners, can benefit from a 30% tax credit on renewable energy systems, called the energy investment tax credit.
This program was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008. This law extended the duration — by eight years — of the existing credits for solar energy, fuel cells, and microturbines; increased the credit amount for fuel cells; established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems; allowed utilities to use the credits; and allowed taxpayers to take the credit against the alternative minimum tax (AMT), subject to certain limitations. The credit was further expanded by the American Recovery and Reinvestment Act of 2009, enacted in February 2009.
Similarly to the residential program, it was extended by Congress at the end of 2015 and faces a step-down at the end of 2019:
- Through December 31, 2019 – 30%
- December 31, 2020 – 26%
- December 31, 2021 – 22%
- December 31, 2022, & All Future Years – 10%
Also similarly to the residential program, IRS tax guidance suggests that battery storage systems are eligible for this credit when the battery system is charged by a solar electric generation system.
MACRS + Bonus Depreciation
Under the federal tax code, renewable energy systems qualify for a 5-year Modified Accelerated Cost-Recovery System (MACRS) depreciation schedule.
The exact benefit of this depreciation is complicated and varies depending on your businesses’ tax rate, but typically it adds up to an additional 25% of a solar energy project’s cost being offset by reduced tax payments.
To further sweeten this incentive, The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.
Given the time value of money, this benefit helps make solar energy systems more accessible in the near-term by businesses that will be able to save significant fossil fuel energy costs over the life of the system.
- DSIRE – Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation (2008-2012)
- IRS Form 4562 – Depreciation and Amortization (Including Information on Listed Property) (PDF)
- IRS – Instructions for Form 4562 (PDF)
State-Specific Solar Incentives
Massachusetts – SMART
For years, Massachusetts has had very popular programs to support solar by rewarding solar generators (both homes and businesses) by an added incentive for the solar added to the grid (beyond simply compensating for the rate of electricity). For more details about the cost and feasibility of going solar – and adding other green technologies – check out our Guide to Going Solar in Massachusetts.
The SMART solar program is the latest evolution of this program — it’s 2 years in the making and replaces Massachusetts’s Solar Renewable Energy Certificate (SRECs) program, which was more than a little complicated. Under SREC, Solar Champions only received payment once a year, or quarterly (monthly was possible if they were willing to sacrifice a fraction of their SRECs through a couple of different means).
Under the SMART program, you receive a check from the utility based on a fixed $$$ number paid per kilowatt-hour of solar generated, multiplied by your actual solar generation EVERY month, for 10 years. If you have solar for your business it’s 20 years! In many situations, putting solar on roofs and yards will generate more in savings and SMART credit payments than the owners pay out each month for the loans on their solar generation systems. You can be truly cash flow positive from day one — saving the world while saving money.