Many of the solar companies use the Federal Tax Credit in your deal as a down payment. The slick parts are as follows, they say no money out of pocket, not no money down. They structure the deals as if you’re going to get the tax credit in the full amount when you may not qualify for the tax credit. This is very important to understand because they use your tax credit as a down-payment so your payments are lower.
Qualifying for the tax credit requires that you owe or prepay income taxes to offset the amount of the tax credit.
Example: You owe or prepaid $10,000 income taxes and you have an ITC credit for $10,000. In this example, you owe $10,000 income taxes the tax credit would mean you don’t have to pay the $10,000 in taxes. If you prepaid your taxes then you receive a $10,000 refund.
Example: You owe or prepaid $4,800 in Income taxes. Your tax credit is $10,000 you do not qualify for the entire $10,000. You only qualify for $4800. You can carry forward the tax credit for up to five years until you reach the amount of the tax credit.