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Tax tip: 3 common questions about solar tax credits

By March 6, 2018 No Comments

When homeowners consider solar power, available tax credits are a major consideration. Andrew Mullen, sales director for Solaroo Energy, a local solar installation company, explains three common questions he routinely answers about solar tax credits.

Can I use the tax credits multiple times?

There are two main tax credits for Utah residents: A state credit of 25 percent up to $1,600, and a federal tax credit of 30 percent.

Utah offers a maximum payout of 25 percent of the cost of your system up to $1,600. You can actually use it more than once in the scenario that you install a solar pool heating system this year for a cost of $6,000, which would give you a state tax credit of $1,500 (25 percent). This would leave an additional $500 to be used in the future on another qualifying solar purchase. But for the state tax credit, once the $1,600 is used, no more can be claimed.

The federal tax credit, however, does not have a ceiling. “You can do a 20-solar panel project on your house this year, and add another 20 panels next year,” Mullen says. “Both purchases on your primary or secondary home would qualify for the 30 percent tax credit.”

Can I use the federal tax credit if I normally get a refund each April?

You can’t tell how much of a solar tax credit you can take by whether you pay or get a refund come tax time. Withholdings are taken from your check each pay period and are used to pay your taxes all throughout the year, instead of writing one big check in April. So if you pay too much, you get some back. If you pay not enough, you pay the difference in April.

The federal solar tax credit is a credit–not a deduction–off your total tax paid. Line 63 on your 2017 1040 federal tax return is labeled “total tax.” This is the number you want to look at. This is the amount you paid in taxes. You will not get back more than this amount from your federal solar tax credit in the current tax year.

Mullen explains, “If you normally get a $1,500 refund because your withholdings were too much, then you would get back that $1,500 plus your solar tax credit, as long as the solar tax credit was not more than your total tax.”

When is the tax credit going away?

The federal tax credit is set to step down to 26 percent from 30 percent in 2020, then to 22 percent in 2021, then permanently to 10 percent in 2022. Because of the progressive step down, time is always of the essence when it comes to solar tax credits.

Altogether, tax benefits can pay almost half of a small residential solar system, and up to 60 percent or 70 percent of a commercial solar system. Additional incentives are offered by Solaroo Energy during the winter months to add to the tax savings. Mullen explains, “We do currently have the steepest discounts of the year, including some free solar panels, depending on how big your system is. Now is a great time to have us look at your roof, and how much solar power you can produce.”