Who qualifies for a solar tax credit? How it works


This blog offers a summary of federal solar tax credit incentives for home solar and other alternative energy sources (photovoltaics or PV). This site does not provide professional tax advice because we are solar enthusiasts, not tax experts.

When making energy-related purchases for your home or filing tax returns, this should not be your primary source of information. To find out what makes sense for you, talk to a tax professional.

Going solar is a great way for many homes to reduce their monthly energy costs and reliance on utility companies. The federal solar tax credit can increase the appeal of this investment.

According to the IRS, a tax credit is a reduction in the amount of taxes owed. Additionally, the Local Energy Efficient Property Credit often applies to solar installations.

As of 17 August 2022, the applicable lending rate is:

  1. 26% applies to properties brought into operation between 31 December 2019 and 1 January 2022.
  2. 30% applies to properties brought into service between 31 December 2021 and 1 January 2033.
  3. 26 percent for properties put into operation after December 31, 2032.

For example, if the credit is 30%, a homeowner who spends $30,000 on an 8-kilowatt solar installation could get a $9,000 reduction in their tax liability. If you are aware of the pre-requisites and how to apply, availing this loan is as simple as A, B and C.

According to US Department of Energyyou must meet all the prerequisites to be eligible for the federal solar tax credit:

  • You must be a homeowner (renters are excluded, unfortunately).
  • It must be a brand new system or one that is being used for the first time.
  • Your solar panels should be yours.

This last advantage may not be as obvious as it first seems, because some homeowners choose to lease their solar panels from outside companies. While leasing a vehicle may make sense in some circumstances, you lose the right to claim the leasing business tax credit.

_Sun tax credit
_Sun tax credit

In contrast, homeowners who finance their panels with a loan (through the Mosaic platform, for example) or buy them outright may be eligible for the tax credit.

You must file IRS Form 5695 with your tax return to claim the tax credit. The credit will be calculated on the form and the result will be entered on your 1040 individual tax form.

You can’t get money back from the IRS if your tax return for the previous year shows you have more credit than the income tax you owe. The credit can usually be carried forward to the next tax year. It’s important to understand that this is a tax credit, not a refund or deduction.

Tax credits serve to offset the remaining tax owed to the government; as a result, they are not available to you if you have no tax liability. Don’t worry if you forgot to claim the credit in the previous year. You can file a corrected return.

How do I use the tax credit to pay off my loan?

The solar loan options offered by Mosaic are made to be customizable, clear and reasonable; in the case of CHOICE loans, the monthly payments are even designed with the federal tax credit in mind.

Whether you choose a CHOICE loan or a PLUS loan, you can use your federal tax credit or your funds to lower your monthly loan payments. Here’s how it works:

CHOICE: The federal tax credit is factored into the structuring of Mosaic’s CHOICE loan product. By applying the full amount of your loan, you can lock in reduced monthly payments. Here’s how it works:

  • Your monthly payment starting in month 19 may be reduced if you complete your CHOICE prepayment before the end of month 18.
  • Future payments will be cheaper the earlier CHOICE payment is used.
  • Your monthly payment increases if you pay off your loan faster than the designated CHOICE loan balance.

You can decide!

PLUS: Monthly payments on Mosaic’s PLUS loan product do not involve the use of the federal tax credit, and it can be used to finance other home improvements in addition to solar and batteries.

However, if you choose to make voluntary prepayments to reduce your loan principal in the first 18 months, using a tax credit or personal savings, your monthly payments will be reduced over the life of the loan, just like CHOICE. Contrary to CHOICE, your monthly payments will not increase if you choose not to make any more prepayments.

There are never prepayment penalties with the CHOICE or PLUS programs, regardless of how much or whether you want to pay.

We strongly advise you to speak with a tax professional about your eligibility for the Personal Federal Tax Credit to see if you can take it and apply it to your loan. We also have a fantastic customer support team ready to answer any additional non-tax queries you may have.

*You may be able to access federal and state tax credits depending on your specific financial situation. Please get advice from a tax professional about your eligibility.

Conclusion

The U.S. Treasury Department began a series of meetings with clean power groups, utilities, unions and others on Wednesday. The goal is to come up with detailed rules for about $270 billion in new incentives to spur investment in green energy.

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