The end of the year is fast approaching, especially for those who are deciding whether to go solar in 2020. As we look forward to wrapping up a long and unexpected year, there are several key items to pay attention to in terms of solar incentives available in North Carolina.
This is why we’ve reached out to Randy Lucas, a CPA specializing in energy and tax issues in North Carolina, to clarify common points of confusion around the Residential Federal Investment Tax Credit for solar (now 26%, stepping down to 22% in 2023). If you’re solar curious or are working with another solar contractor promising the 26% tax credit on a residential solar system, we advise you to continue reading Randy’s guest post below!
The Year 2020 is like no other. I am going to take a guess that this year is not what you sketched out at the start of the year. As we look to survive the challenges of 2020 by adapting and pivoting, to ultimately thrive and move forward in 2021 and beyond, I wanted to share and highlight for homeowners that now is a great time to either (A.) consider investing in your property by adding solar to power your home, or (B.) if you already own a solar system, the remaining days in 2020 are a great opportunity to assess whether the system can be expanded or enhanced to navigate the ‘new normal’ on the road to truly thriving.
With 2020 winding down, it is very important to keep in mind the timing of the installation to be able to claim related incentives from investing in solar. Many local NC solar companies’ 2020 installation calendars are filling up quickly as homeowners look to maximize their solar savings by tapping into solar incentives that will be stepping down soon.
The Federal Solar Investment Tax Credit (ITC) is a great incentive for solar, but has a limited time before it sunsets. In this post, we will be focusing on the residential portion of the ITC. Right now, the ITC is 26% for residential systems installed in 2021. This is scheduled to decrease by 4% to 22% 2023. That means, on an average $25,000 residential solar system, you would receive $6,500 back in tax credits for a system installed in 2023, or $5,500 for a system installed in 2023. The time is now for residential solar.
If a company is including the 26% tax credit on your home solar proposal, that means they will need to fully install your solar system before the tax credit steps down to 22%. It is important to note, the residential solar system does not have to be energized and operational to be considered placed in service. However, per IRS guidance, the ITC is allowed “when the original installation is completed”. This was more of a concern before, when the tax credits were set to step down to 22% in 2022. However, with the recent 2021 extension, we won’t be as concerned about this until the credit steps down again in 2023.
Also note, the Safe Harbor guidance issued in 2018 (Notice 2018-59) that fundamentally changed how the Section 48 tax credit is determined for Business/Corporate Taxpayers, unfortunately does not apply to residential systems under Section 25D. What this means in English, is that the allowance for commercial projects to pay for, and commence, a very small portion of the project in 2020 in order to “lock in” the 26% tax credit for 2020 does not at all apply to a residential system. Again, this is more of a reminder for the 2022-2023 season when the stepdown comes into play.
It is a good idea to discuss the installation plan and timing with your installer. Also please be sure to document the installation with documents/invoices/contract and even photos as support for your ITC claim when filing your income tax returns.
I wrote this piece on What Is and Isn’t Eligible for the Solar Federal Tax Credit last year that you can reference if you have questions about what you can claim under this credit.
For homeowners who already own solar systems, there are opportunities to add to the existing system while taking advantage of the ITC. With ongoing advancements in solar and battery storage technology, it’s a great time to look into whether upgrading an existing solar system with battery storage is right for your home. Tesla batteries are now readily available in North Carolina and have been a popular choice for homeowners looking for emergency power backup. The good news is that solar battery storage is also eligible for the ITC. If you’re interested in battery storage, be sure to talk to your solar provider.
To see a sample residential ITC breakdown on costs associated with a solar system upgrade, check out this unique case our firm recently worked on. We helped a family navigate their ITC on a solar system that was originally installed back in 2011 but was upgraded when they had their roof replaced in 2020.
Again, the time is now for residential solar. If this upgrade were to occur in 2023, the residential ITC would be 22%.
Whether you are considering a new solar system, upgrading/expanding capacity of an existing solar system, or looking into battery storage, we recommend that before entering into a contract for a solar system installation, you should have a detailed listing of all the equipment that will be installed. This will help to clearly determine what is eligible for the Federal Investment Tax Credit and also determine the requirements for your local utility’s solar rebate program, if available.
If you feel the need, please consult your tax advisor or contact us for assistance specific to your system.
Randy M. Lucas, CPA
Principal Consultant, Lucas Tax + Energy Consulting
Friendly PSA! With the tax credit extension, many new and national solar companies are coming in to our community to take advantage of the solar friendly climate in NC. Take a minute to be sure that you are working with a quality solar company with plenty of experience in the NC solar industry. They should have fully trained, in-house solar installers on staff. It is wise to avoid companies that contract out their labor or quickly staff up to keep up with demand without providing adequate training and employee benefits to their team members. Keep in mind, any service that you need on your solar system in the future is not eligible for the ITC.
Beyond the Federal ITC for solar, there is also a utility rebate for solar available to Duke Energy customers. To be eligible for the Duke Energy Rebate, we need to get your system contracted and designed so that you can apply when the second portion of the rebate opens July 2021. If you’ve thought about going solar in the past, or if it’s in the back of your mind as something you’d be interested in checking out, now’s the time to let us know you’re curious about solar.
Request a free virtual solar evaluation today!