The Federal Solar Tax Credit

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In Nevada, your solar system will qualify for the federal solar tax credit. There are no other rebates or incentives currently available in Nevada. The NV Energy rebate expired 6-5-2019. The smaller rural utilities have also ended their solar rebate programs.

The Federal Solar Tax Credit

The Federal solar tax credit will help you pay for your solar system. If you owe federal income taxes, even if you usually get a refund, you can use this federal tax credit.

  • GET YOUR HARD-EARNED MONEY BACK! This is the largest, non-income limited tax credit you can get.
  • It is 26% of the cost of your system. On a $20,000 system that means $5,200 of your hard-earned dollars go right back into YOUR POCKET!
  • It’s not a tax deduction. Tax credits reduce how much you owe in taxes DOLLAR FOR DOLLAR, not how much money you pay taxes on. That usually means a MUCH BIGGER refund at tax time!
  • You can carry over unused solar tax credit to future tax years, so even if you cannot use the entire solar tax credit in the first year, the balance will roll over to the next tax year.
  • If you lease the system, the federal solar tax credit goes to the system owner – not you! Whomever owns those panels gets the solar tax credit, so before you lease, consider carefully what you are giving up.

So what exactly does the solar tax credit do?

Lots of people mistakenly think you just get a check in the mail for 26% of the purchase cost of your solar system. Nope. That would be a rebate. There are no rebates available for solar in Nevada. Does that mean you take 26% of the cost of install and remove that from your earned income when filing your Federal income taxes? Nope. That would be a tax deduction, not a tax credit. A tax deduction reduces the amount of income you pay taxes on. It’s valuable but tax credits are FAR more valuable.

Federal Solar Tax Credit

Here’s an example of a tax deduction. If you make $100,000 (gross income) you get to deduct $12,400 (standard deduction for a single taxpayer), you are only taxed on $87,600 of income (taxable income). If your tax bracket was 15%, your total tax liability would be reduced from $15,000 on the full $100,000 of income to $13,140 on reduced taxable income of $87,600. That tax deduction saved you $1,860 on your tax bill. Nice.. but you still owe $13,140 in taxes.

Tax credits, on the other hand, reduce the amount you actually pay in federal income taxes. They are FAR more valuable because they reduce your tax bill dollar for dollar. You pay $1 less in federal income taxes for every $1 in your solar tax credit.

Let’s say you had a total federal tax withholding for the year of $15,000 and you owed $10,000 in federal income taxes for the year. Your solar tax credit is $8,500.

If you had no solar tax credit: $10,000 owed – $15,000 paid = $5,000 refund

With the solar tax credit: $10,000 owed – $8,500 tax credit = $1,500 owed – $15,000 paid = $13,500 REFUND !!!!!!!

As long as you have US federal income tax liability and own your home, you can use the federal solar tax credit – no matter what the source of your taxable income is (W-2 wages, 1099 income, interest, dividends, etc.) or how your taxes are paid (federal withholding through your job, quarterly or annual payments or withholding from a pension or IRA). If you owe any federal income tax for the year you are going solar and you own your home, this tax credit is for you!

Some folks get especially confused and think that if they already get a tax refund, they can’t use the solar tax credit. Good News! Even if you usually get a federal income tax refund, the federal solar tax credit will still work for you. You’ll likely get a much larger refund the year you go solar because you’ll owe a lot less in taxes thanks to the solar tax credit – just like the example above. As long as you owed taxes to begin with, the solar tax credit could benefit you. You can even stack it up with other tax credits like the child tax credit or dependent care credit.

What if you usually owe taxes at the end of the year? The federal solar tax credit can help you, too! If you owe less money in taxes to begin with because of the solar tax credit, you could actually get a refund this year! Even getting $5 back would be better than saying a lot of nasty words while you writing a $5,000 check to the IRS, right?

The only folks who can’t actually use the federal solar tax credit are those with no US taxable income and thus no tax liability, such as person on 100% Disability or whose only income is from Social Security or those who do not own their home.

NOTE: Taxes are complicated things. These simplified examples are meant to help you understand how the solar tax credit works in a general way. We are NOT tax planners, tax accounts or anybody’s CPA. Now that you have a general idea how the solar tax credit works, discuss how the credit would benefit you with your own tax professional before making any decisions.

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