Select Page

“Learners Inherit the Earth While the Learned Find Themselves Equipped to Deal with a World that No Longer Exists .” – Eric Hoffer

 

Understanding Solar Panel Tax Credits and Renewable Energy Credits

There is a lot of misinformation floating around about residential Solar including misinformation about solar panel tax credits. If you find yourself sitting down at your kitchen table with a 20-something who seems to know what they are talking about, he may be trained to bring up selling points like the federal tax credits without fully understanding the unique qualification guidelines.

This post will help you understand who qualifies and who doesn’t and expose common misconceptions about Solar Panel Tax Credits so you can maximize your solar savings without getting taken advantage of.

With that said, here are 5 common misconceptions about the Federal Solar tax credit 👊

 

1. The tax credit is only available for a limited time:

The federal tax credit for solar systems, also known as the Investment Tax Credit (ITC), is currently set to decrease over time but it is not set to expire. It will be 26% till the end of 2022 and then it will decrease to 22% till the end of 2023. 

2. Only homeowners can take advantage of the credit:

The ITC applies to both residential and commercial properties. 

3 – The credit only applies to the cost of the solar panels:

The ITC applies to the cost of the entire solar energy system, including installation and related equipment. 

4 – The credit is a grant, not a tax credit:

The ITC is a dollar-for-dollar reduction in the amount of taxes owed, not a grant. 

5 – The credit can only be claimed in the year the system is installed:

The ITC can be claimed in the year the system is placed in service, but it can also be carried forward to future tax years if the credit exceeds the taxpayer’s liability in the current year.

 

Who Qualifies for the Federal Tax Credit and Who Does Not?

The federal solar tax credit, also known as the Investment Tax Credit (ITC), is available to any individual or entity that installs a solar energy system on their property for use in their trade or business or for generating electricity for their own use. This includes both residential and commercial properties. 

There are some restrictions on who may qualify for the ITC. For example, credit is not available to individuals or entities that install a solar energy system on property that they do not own. Additionally, the credit is not available to individuals or entities that install a solar energy system on property that is used primarily for personal use, such as a vacation home. 

Also, there are limits on how much of the credit can be claimed based on the type of property. For residential properties, the credit is limited to the amount of tax liability for the year. For commercial properties, the credit is limited to 10% of the cost of the system. 

It’s important to note that the ITC is a federal tax credit, and it is always a good idea to consult with a tax professional to determine the best way to take advantage of it. Also, there might be additional state or local incentives or credits available.

 

What is an SREC? (Solar Renewable Energy Credit)

SREC stands for Solar Renewable Energy Credit. These are state-specific incentives for homeowners to install renewable energy systems to their homes.

A solar system is just one example of such a system. In many states, SRECs are based on the specific amount of kWh your system produces.

For example, in the state of Massachusetts, under the SMART program, incentives are paid directly to the homeowner on a monthly basis in the form of a check or ACH wire transfer. Incentives range between $.045 and $.12 per kWh depending on the utility.

So for example, if you are a Mass homeowner and your system produces 800 kWh of electricity, and your rate is $.12 per kWh, you will receive a check from your utility company for $101.14. My sister and her family live in Nantucket, Massachusetts. One of her neighbors who transitioned their home to solar told her that they get roughly $400 per month back from their utility company as a result of these credits. Crazy right?

In New Jersey, you get a $90 SREC for every 1,000 kWh your system produces. So a 10KW system in New Jersey will produce roughly $900 per year in SREC credits. You can visit SRECTrade.com to get info about how to sell these credits. For more information on state-specific SRECs, see section 2, as not all states or utilities provide SRECs to their residents. 

Here Are the Next Steps to Determine the Exact Sizing and Pricing of a Solar System for Your Unique Home