Step Two: Understanding The Best Time To Purchase Solar To Benefit From Solar Tax Credit
You’re better off purchasing your system during a high earnings year because of financing interest. For a multitude of reasons not only because you can receive your tax credit all at the same time next tax season. In a high earnings year, you can buy your Solar System for cash and possibly realize as big a savings if not bigger than the tax credit. Because when you pay in cash the savings on Interest and closing costs ($2,500 on average) are quite substantial in addition to the tax credit savings. It’s important to act now because the Florida Solar Tax Credit 2020 is 26% but will be 22% in 2021.
To determine if you qualify for the tax credit the following is an example of how it actually works.
The tax credit is exactly what the name implies. It’s a credit toward income taxes owed or pre-payed. so if you have a tax credit for $5000 and your income taxes owed or pre-payed are $5000 then you will owe no taxes and if pre-payed you would get a refund for $5000.
If you owed no taxes you do not qualify for the tax credit, but you can use the credit for up to five years. Once again because no two peoples taxes are the same, I highly recommend for you to consult whoever does your taxes about including the ITC Tax Credit (IRS Form 5695) In your income tax filings. See more below….
Cash Is King When It Comes To Solar
The truth is if you can afford to pay cash, solar is a no-brainier because you’re saving money every month. Your saving money every month for the next twenty-five years or longer. This doesn’t mean a financed system is not a good investment. If you buy right even financed systems offer huge savings because you’re paying the power company every month.
Step Three: Be Cautious of Solar Companies Including The Tax Credit In The Deal
When a solar company is presenting you a solar proposal quite often they’ll include your tax credit in the deal. This is important to know because they can’t control if you qualify for it or when or how you receive your tax credit. They also can not control what you do with your tax credit, only a tax expert should be consulted to determine if you qualify for it. Should your tax credit be included in your deal it is then expected for the buyer to pay that tax credit to the finance company. The trick they use to disguise what their up to is your loan is interest-free for the first 15 months. Then all of sudden because you didn’t pay that tax credit money toward the solar system the payments go up.
Most Purchases of Solar Financed Receive 2 Different Payments From Solar Companies
In many cases the homeowners agree to pay the tax credit to the finance company or their solar payment will be higher than your power bill they’re off-setting. Most financed deals give you interest-free for the first year. The reason is you don’t receive a tax credit for up to a year from the time of purchase. So the finance company wants to give you ample time to include your tax credit into the deal to lower your payments. The idea being to off-set what your power bill was and to help you to realize immediate savings.
The problem is a lot of people don’t understand this part of buying solar. Basically the solar companies use your tax credit as a down-payment for your purchase. But what happens if the next tax season the homeowner finds out they don’t qualify for the tax credit? Their finance payment could be much higher than their power bill was before solar. It does not mean it was a bad purchase it just means it will cost 26% more than they anticipated when purchasing the solar system.
If you don’t pay the tax credit money to the lender your system becomes a 100% financed system because there’s no down-payment. Basically the solar companies use your tax credit as a down-payment for your purchase.
Step Four: How Do I Apply for And Receive My Solar Tax Credit?
An uncapped 26% federal tax credit on residential solar electric (PV) systems remains in effect through the end of 2020. Because the tax credit goes to 22% next year now is the best time to go solar for the lowest cost. In 2021 the tax credit is 22%, and then the tax credit ends completely at the end of 2021.
Include The Tax Credit In Your Tax Filings
This is how you receive the tax credit. Include IRS Form 5695 when you file your taxes. Here is the link for Tax Credit Instructions.
Also, use Form 5695 to take any residential energy efficient property credit carry forward from 2018. Or to carry the unused portion of the credit to 2020. You may be able to take the credits if you made energy-saving improvements to your home located in the United States in 2019.
The Majority of Solar Panels Do Come With a 25 Year Manufacturer Warranty
The biggest challenge is that most folks don’t believe that solar panels will last for twenty-five years or more? The truth is they are designed to last for forty years or more and are storm tested.
The best clue you have for how long solar panels last is the power companies are using the exact same panels. They wouldn’t be making such a sizable investment into solar farms if the technology wasn’t sound. Also, the banks wouldn’t do 20-year financing if the equipment didn’t last that long.
So if a solar payment is at or below your power bill there really is no reason not to go solar. But if you buy your equipment wholesale, the cost of solar is substantially less and you can make a profit.
At a minimum, you’re helping the environment with no additional expense by off-setting power bills. Buy right and you will more than likely realize substantial savings by going solar.