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The Most Important Thing You Should Know if You’re Considering Solar in 2019

Thursday, Oct 31 2019

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SEIA Comms Team

Through all the politics, extreme weather events and variable electricity prices, solar has become a mainstream choice for homeowners to take control of their energy costs. Hundreds of thousands of Americans are considering going solar right now, and as the start of the solar Investment Tax Credit (ITC) phaseout looms (for now), here is what you need to know to make the right choice and maximize your cost savings.

Let’s start with the basics. The ITC is a federal tax credit that allows homeowners and businesses to deduct 30% of the cost of installing solar from their federal taxes. Since 2006, the credit has helped solar deployment grow by more than 10,000% and is a proven policy for spurring private investment.

itc phasedown

Beginning on January 1, 2020, the 30% ITC drops to 26%, followed by a gradual phaseout for residential solar by 2022. This means that if you want to maximize your tax savings when going solar, now is the time to get quotes and install a system.

There are a few important things to remember:

1. Homeowners Get the Credit

First and foremost, you must own your own panels in order to take advantage of the tax credit. If you lease your panels or get solar through a contract or other arrangement like a power purchase agreement (PPA), chances are that the credit will go to the company that is leasing the system or offering the PPA.

2. “Commence Construction” Only Applies to Commercial Customers

Last year, you may have heard about new “commence construction” guidance from the IRS, which determined that businesses can lock in the 30% ITC if a project begins construction in 2019 and is completed before January 1, 2024. However, this rule does not apply to residential solar customers.

3. Remember: Plug It In, Plug It In

According to the IRS, in order to receive the full 30% residential solar tax credit, the solar energy system must be “placed in service” before the end of the day on December 31, 2019. In a recent private letter ruling, the IRS equated “placed in service” to completing installation. While this language is still vague, signing a contract, making a down payment, and just beginning construction probably won’t count. There isn’t a bright-line test on what constitutes “placed in service,” but one safe way to know you completed installation is that you’re ready to connect to the grid. Or, if you have an off-grid system or a solar water heater, you’re ready to turn on the system.

While you should always direct specific questions to a lawyer, SEIA has developed a factsheet that can also be a helpful resource.

How to qualify for the solar ITC

The factsheet lays out everything a homeowner should know about claiming the ITC before it drops to 26% on January 1, 2020. The same framework also applies to subsequent years when the credit drops to 22% and then phases out entirely.

Concerned that a smaller ITC will prevent you from going solar? The solar industry, led by SEIA, is waging a national lobbying and public affairs campaign to secure an extension of the solar ITC in Congress.

The campaign began over the summer when nearly 1,000 U.S. solar companies sent a letter to lawmakers urging them to extend the credit. This sparked our champions in Congress to introduce companion bills that will extend the ITC for five years (HR3961 and S2289).

We now have at least 10 Republican co-sponsors on the House bill, continuing the bipartisan legacy of the solar ITC. SEIA, along with our members and allies, continue to work congressional offices to secure additional support for the legislation, but we need help from advocates like you to get this done.

To take part, join our campaign at www.seia.org/DefendTheITC, use the hashtag #DefendTheITC on social media, and most importantly, tell your representatives to co-sponsor the bill.

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