Solar Tax Credits: Avoid Common Blunders!

Today I wanted to talk about Solar energy tax credits. The problem is - solar energy tax credit sales people and promoters don’t always give correct information regarding the tax credits available for buying solar panels for your home.

This may or may not surprise you. Yes, there are generous tax credits available. But if you’re not careful, you can end up getting duped or misled. And not actually ever getting the big tax credits you might’ve been expecting.

Who doesn’t like the idea of solar power? Free, clean energy from the sun, right?

Solar energy tax credits are like a reward given by our government to encourage people to switch to solar energy.

These credits can help individuals and businesses financially when they install solar panels on their property.

Basically, the solar tax credit allows you to claim a percentage of the cost of your solar energy system, as a tax credit, on your federal income tax return. And, get this, it's a credit, not a deduction, which means it goes straight to reducing the amount of taxes you owe.

Keep in mind, tax credits are always better than tax deductions.

You can claim the solar tax credit if you install a solar energy system on your primary or secondary residence that meets certain requirements. You'll also need to own the system outright, rather than leasing it from a third-party.

Right now, the solar tax credit is 30% of the cost of your solar energy system. That means, if you install a system that costs $20,000, you could be eligible for a tax credit of $6,000.

Not bad. And, the credit has been extended until 2034, so this’ll be around for a while.

A tax credit is a dollar for dollar reduction from taxes you would have owed.

Here’s the problem though...

The solar energy tax credit is NOT refundable.

I know what you’re thinking. What the heck does that mean?

It means that if you don’t have a tax liability, then you can’t utilize the tax credit.

But it can be carried forward to future years.

Allow me to share a story with you:

This guy John purchased a solar power energy system for his home, for $30,000.

Salesperson says to him, John, you’re going to get a big tax credit of $9,000, effectively reducing your cost to only $21,000.

John lights up and says, “LET’S DO IT”.

Later on at tax time. John sits down with his tax professional, looking forward to cash in on his big solar energy tax credit.

The tax pro prepares his return… and has to break the bad news to him.

He can’t take the solar tax credit.

But why?

John actually was retired, and didn’t have a tax liability for the year. Meaning he didn’t actually owe much taxes, if any.

He had some retirement account distributions, social security, and some federal withholding that he usually got back in the form of a tax refund.

Now, John is very upset and blaming his tax preparer for being incompetent, when actually he was either misled or he was not actually fully informed.

It wasn’t his tax preparers fault.

Folks, solar energy tax credits can reduce your tax liability to zero. But not less than zero.

The refunds actually come from your own Federal withholding!

So, when you hear about a tax credit as being “not refundable”. It means that if you don’t have a tax liability at the end of the tax year, then you can’t utilize it.

I’ve tried to explain this as simply as I can, but please leave a comment if you have any questions, and please share the video with anyone looking to buy solar panels. You’ll really be helping them out.

My best advice is to talk to your tax professional before buying solar panels. If you don’t have one, get one.

Don’t believe everything your salesperson tells you.

They’re just trying to make the sale, and they probably don’t know your specific tax situation, so there’s that.

Overall, the solar energy tax credit can be a valuable financial incentive for individuals and businesses looking to invest in solar energy systems.

It can help to reduce the upfront cost of installation and make solar energy more accessible to a wider range of people.

Just know what you’re getting into before you start.

Thanks for reading, and see you in the next blog post!