Solar energy tax credits available in Charleston South Carolina
by Rachel Propst, Solar Consultant, RayWell Solar
The Federal Tax Credit
If you’ve been considering solar energy, you may have heard about the federal solar tax credit, otherwise known as the Investment Tax Credit (ITC), that makes solar systems more affordable for property owners by granting a dollar-for-dollar tax deduction.
Whether you live in South Carolina or not, you can apply the federal solar tax credit to deduct 30% of the cost of installing a solar PV system from your federal income taxes. The ITC will apply to both residential and commercial solar projects, and there is no cap on its value.
The federal tax credit was originally established by the Energy Policy Act of 2005 and had an expiration date in 2007. After a series of extensions, the federal ITC expiration was pushed back so that property owners can receive some form of the tax credit through 2021.
The federal ITC will remain at 30% of the cost of the solar energy system from 2016-2019. In 2020, the tax credit will allow new solar owners to deduct 26% of the cost of their system from taxes. If you choose to install solar in 2021, you will only receive a 22% deduction and from 2022 onwards, new commercial solar owners will be able to deduct 10% while residential solar energy tax credits will cease to exist.
The individual who owns the solar energy system is the one eligible for the solar tax credit. If that solar owner doesn’t have enough tax liability to claim the full 30% credit in year one, they can continue to “roll over” remaining credits into future years as long as the tax credit is still in effect.
What does this mean for a solar lease of PPA? With a solar lease or power purchase agreement, the solar energy system is owned by a third party and therefore the homeowner is not eligible to receive the tax credits.
In order to claim your solar tax credit, let your accountant know during tax time or contact a tax professional to walk you through the process before filing. You will need the receipts for your solar installation along with IRS Form 1040 and IRS Form 5695 to qualify for your credit. (https://www.irs.gov/pub/irs-pdf/f5695.pdf)
The State Tax Credit
Aside from the federal tax credit, various states also offer rebates and incentives for their residents. South Carolina, for instance, allows residents to claim 25% of their solar costs as a tax credit. This state-level tax credit will carry over for up to 10 years if the solar owners doesn’t have enough tax liability to receive the full amount in the first year. The South Carolina tax credit caps at $3,500 annually for up to 10 years and a maximum payback value of $35,000. Just like the federal ITC, this state-level tax credit does apply to both residential and commercial solar owners.
In addition to state and federal tax credits for solar energy, government agencies, utilities and others offer a variety of tax credits, rebates and other incentives to encourage the use of renewable energy. The motivation to incentivize is to lessen pollution and support energy efficiency. To learn more about specific incentives available to you, check out the Energy Department’s website: https://energy.gov/savings.