In order to facilitate the adoption of clean energy, the Federal Solar Tax Credit or the Federal Investment Tax Credit (ITC) was initiated. The bill was passed during the George Bush administration through the Energy Policy Act of 2005.
The Solar ITC is one of the greatest and most popular New Mexico solar panels installation incentives which offer a certain percentage tax incentive on your gross solar system cost. It started as a 30% credit capped at $2,000 for residential projects though the provision was removed in 2008.
The gross system cost on which the incentive is offered may include all improvements necessary to facilitate the solar installation such as electrical work required for the installation like:
- Panel box upgrade
- Roof work under the solar array
- Ongoing maintenance by a local NM solar provider.
When does the solar tax credit expire?
This solar tax credit incentive has had its expiration date extended twice by the Federal government. The last extension made in 2016 included a “step-down” schedule that will phase out the credit over a couple of years. As of 1/1/2020, the first year of the tax reduction started with a 4% drop from the initial 30% credit to 26%.
(Note that the residential part of the Solar Tax Credit will be completely eliminated from 2022 onward, while a 10% tax credit will remain for only industrial, commercial, and utility-scale projects.)
While you can still claim the 26% tax incentive before it completely phases out, you need to meet certain requirements to guarantee your claims, and they include:
- Owning the system by going solar either through cash or a solar loan. (Note that PPA financing or lease cannot claim the tax credit.)
- The second requirement is an income tax liability which is what the credit incentive reduces.
The tax credit is a dollar for dollar income tax reduction incentive, meaning that the credit reduces the amount of tax that you owe.
If you have only $5,000 in your personal income taxes for a year, and your 26% tax credit is $6,000 in total, you can rollover the remaining $1,000 tax credit to the following year.
To be on the safe side, and to be completely certain that you can claim the tax credit in 2020’s taxes, it’s advisable to have your solar project fully installed and paid for in 2020.
Usually, the actual installation of a solar system won’t take more than one day; however, a solar project may take weeks to be completed after the contract signing. This is as a result of certain factors like permitting, utility approval, financial approval, and others. This has left many homeowners scrambling to find the best solar companies in NM.
As words continue to spread about the reduction of the Federal solar tax credit, towards the end of the year, solar installers in NM are likely to get busier. This means that solar installation may take longer than usual to be completed.
In the previous year, there were unexpected delays as a result of the extremely high number of customers who were trying to guarantee the full 30% tax credits.
If you want to guarantee your 26% ITC, you may have to move forward with your solar project in 2020. However, we recommend you speak to your tax professional to get a professional take on this advice.
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NMWE is a premier provider of renewable energy and solar-powered solutions in New Mexico.
- On/Off-Grid Solar Install
- Electrical Service
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