Solar: You’ll pay me?

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Yes, that’s right! Both levels of government will pay you to invest in solar. This is provided that you are a property owner and pay sufficient taxes.

The Federal Residential Solar Energy Credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe equal to 26% of the cost of a solar PV system, with no dollar limits. Property owners can use this credit for their primary residence and second homes, but not revenue properties.

The credit is currently scheduled to reduce to 22% after 2022; unless the 26% rate is extended, which happened in 2020. The incentive is to phase out altogether by 2024.

If the credit cannot be all claimed in the year of installation, it may be carried forward for up to five years as a credit against the subsequent year’s tax liabilities. This is applicable to first and second homes where the solar PV system is purchased or financed, but not leased, as then you do not own the system.

The Residential Arizona Solar Tax Credit is a dollar-for-dollar reduction in the amount of state income tax you would otherwise owe equal to 25% of the cost of a solar PV system, to a maximum of $1000 per residence. If the credit cannot be all claimed in the year of installation, it may be carried forward for up to five years as a credit against the subsequent year’s tax liabilities.

Property owners not required to pay Federal or Arizona taxes can not benefit from these tax credits. From time to time there have been government and utility programs to assist low-income earners in our ways to invest in solar.

The Solar Equipment Sales Tax Exemption ensures that residents of Arizona are free from the burden of any state sales tax. In addition, the Energy Equipment Property Tax Exemption prevents any additional sales tax from being charged resulting from the investment in solar panels adding to the assessed value of your property.

Current utility company solar credits focus on purchasing excess electricity produced by a PV system onto their grid during the day at a fixed price and term. This excess electricity can then be drawn off the grid to meet home late afternoon, night and early morning demand, priced dependent on the rate plan selected and time of use.

For businesses investing in solar, the Federal Solar Investment Tax Credit is a tax credit that can be claimed on federal corporate income tax for a total of 26% through the end of 2022. Further enjoyed by businesses is both Accelerated Depreciation and Bonus Depreciation of the investment in solar.

Accelerated Depreciation is allowed on 100% of the investment amount less 50% of the federal tax credit. This depreciation is an expense that reduces corporate revenue and taxes in an amount dependent on the business’s tax rate. The solar can be depreciated over five years with a larger portion deductible in earlier years and carried forward indefinitely.

A business with solar can also elect for Bonus Depreciation of 100% of the Accelerated Depreciation amount through the end of 2022. Non-profit or not-for-profit businesses do not qualify for tax credits or depreciation, since they owe no taxes.

Recent legislation attempted to change the Federal Tax Credit to a rebate. Had this passed, the Federal assistance would have been received when making a solar investment, even if the property owner, non-profit or not-for-profit business did not pay taxes. Only time will tell.

So, not to look a gift horse in the mouth, always best to consider solar when someone else is willing to help you out!

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