Federal Incentives The Renewable Energy Tax Credit commonly referred to as the Federal Tax Credit or ITC, provides a 30% federal tax credit for residential and commercial solar installations. The 30% credit is calculated from the total system cost. This would include sales tax, permits, and fees, in addition to the materials and labor cost. The IRS also recently issued a private letter ruling allowing battery storage systems that are charged by solar to be eligible for the credit.
To claim the tax credit for residential installations, you would need to fill out IRS Form 5695 and submit that with your federal tax filing. The credit is normally claimed for installations that were paid for during the tax year you are filing. For commercial installations you would use IRS Form 3468.
Importantly, the ITC is a tax credit against your tax liability. It is not a reduction of income, or a tax deduction.
Here’s a summary of the rate schedule and some guidance from energy.gov:
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
There is no maximum credit for systems placed in service after 2008.
Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
The home served by the system does not have to be the taxpayer’s principal residence.
Example: If the total cost of your new solar installation was $10,000 in 2018, then when you file your taxes in early 2019, for the 2018 tax year, you may be able to claim a tax credit of $3,000 ($10,000 x 30%). If you had a tax liability in 2018 of $10,000, then the tax credit would reduce your tax liability to $7,000.
If your new solar installation generated a tax credit of $3,000, but you had less than $3,000 in tax liability, then you may be able to roll over a portion of the tax credit to the next tax year.
* Remember, we are solar installers, not accountants. Please contact your tax professional to confirm how you can make use of the ITC.
Net Metering If you are an OPALCO member then your grid-tied solar PV system is eligible for net-metering. Net-metering means that if your array produces more electricity than you consume (common in summer months) then you earn credits for the electricity you sent back to the grid. During a later month, if you consume more electricity than your array produces (common in winter months) then you retrieve those credits at full value. This means it is perfectly possible to pay only the facilities charge* in December even though you consumed more electricity than you produced.
With net-metering, you receive the full benefit of any electricity your array produces even if you don’t consume that electricity during that month. Moreover, if it happens that you have produced more electricity than you consumed for the entire year, then OPALCO will send you a check for the excess production times the wholesale electricity rate (roughly $0.045/kWh). *OPALCO charges a flat fee of $42.57 each month, even if you use no electricity. This is known as the facilities charge and allows OPALCO to cover infrastructure costs even as electricity consumption varies.