The Federal Solar Tax Credit

Think solar power is a good idea? Here’s some news — the feds think so too! Better still, if you put solar power into your home, they will give back some of your tax dollars.

There’s been a federal Solar Tax Credit in the US for years, but it used to be capped at $2,000. Now that’s worth having, but it’s small beer when you reckon up the cost of a serious installation.

Today you can get a 30% credit toward solar installation

The game changed in 2009, when the Emergency Economic Stabilization Act brought in a full 30% credit. That’s right — however much it cost, you can claim back 30% of the cost of your solar installation from the government.

We recommend that you talk to a tax professional before laying out your hard-earned cash. (You can likely get some advice from your solar company, too.) But here’s how the credit works in theory:

Let’s say that you put in a $15,000 installation. You’re due for a 30% credit — that’s $4500. File a copy of IRS form #5695 and you can get the IRS to credit you that much against your next tax bill. So, if you were due to pay $8400, now you’re only going to pay $3900.

Tax rollover

But what if your tax bill was less than the full $4500? No problem — you can roll the surplus over to the next year, and the next, right up until the scheme ends in 2016. (And maybe after, if they decide to keep it going.) As long as you’re paying a little tax, you can benefit.

Devil in the Details

Of course, there’s a few things to watch out for.

Firstly, if you’re on a so-called solar lease — the kind of deal where you don’t actually buy the panels and components — the tax credit will go to the installers. That’s how the solar companies pay for all those low-cost installations!

Secondly, the credit is only against your actual spend. If you put in a $15000 system and got $1500 cashback from the installers, the IRS reckons that you actually paid $13500. Your credit comes down to match.

Wrapping up

Not yet decided about solar? The Solar Tax Credit might clinch it. When you combine the credit with the additional breaks available at state and town level, going solar starts to look like a really good idea.