Won’t be completely gone until 2022 but will be reduced!
2019 is the last year for the 30% Federal Tax Credit! The tax credit allows you to write off 30% of the cost of your solar panel system from your annual Federal Income tax return. An important distinction to understand is that tax credit if better than a tax deduction. A deduction lowers your annual income that is going to be taxed. A Tax Credit goes against the amount of tax responsibility you have for the given year. It is dollar for dollar against what you owed or paid on your w2. Where a tax deduction you really only recognize a percentage of the reduction in actual dollars usually to the percentage of your tax bracket. So if you are in a 25% tax bracket and you have a $4,000 deduction that will translate into a $1,000 of actual tax responsibility. Where with a tax credit, if it is $4,000 tax credit it will translate into a deduction $4,000 of your actual tax responsibility.
That makes this the absolute best year to incorporate solar into your energy portfolio. However, if you have a circumstance that will preclude you from taking advantage of the Solar Tax Credit you will not be left out in the rain. The Solar Tax Credit will have a two year deceleration period. In 2020 the Solar Federal Tax Credit will be lowered from 30% down to 26%. So it will still be a good deal but you will be leaving money on the table. For example, If you purchased a solar panel system in 2019 for $28,000 your 30% tax credit will be $8,400 and your net system price will be $19,600. However, If you purchase the same system in 2020 for $28,000 your tax credit will be $7,280 and your net system cost will be $20,720. So if you are able to make your purchase in 2019 you will save an additional $1,120.
The Federal Solar Tax Credit for 2021 will 22% which is an additional 4% reduction in the tax credit. As for our above example, if you paid $28,000 your 30% Federal Tax Credit will be $6,160 and your net system cost will be $21,840. Which means it will cost you $2,240 more than it would in 2019 and $1,120 more than it would in 2021. That is still a great deal when you consider if you wait until 2022 there will be no Residential Solar tax credit which means your $28,000 system will cost you $28,000 or $6,160 more than if you purchased the system in 2021.
Not to worry even without the tax credit solar is a tremendous value for long term energy savings over what you would have paid the power company without it. As the Power Company as an industry raises there rates between 3-4% on average per year. Once you have solar you will have isolated yourself from those increases and essentially creating an annual return on investment that increases its yield be 3-4% a year. However, taking advantage of the tax credit will allow you to make the most return on investment as you will not be leaving any money on the table.
For Commercial Businesses the Federal Tax Credit is a little different. Like the residential tax credit in 2019, there will be a 30% Federal Tax Credit. In 2020 just like the residential tax credit the commercial tax credit will be 26% and in 2021 it will be 22%. However, in 2022 when the residential tax credit goes away the commercial tax credit will be 10%. There is no current expiration date for the 10% tax credit but that doesn’t mean it won’t go away on short notice.
The future for solar energy is bright! Even as the sun begins to set on the 30% Federal Tax Credit the growth of solar is predicted to continue to be one of the fastest growing industries. If you are considering solar energy then now will be the most profitable it will be so the time to act is now.