The federal Solar Investment Tax Credit, a program that has indirectly benefited many contractors over the years, could begin phasing out at the end of 2019. Although they cannot claim the credit themselves, some contractors have used it as an inducement to encourage customers to build additional value into their projects by installing solar energy systems.
The credit allows taxpayers to deduct up to 30 percent of the cost of solar energy system installations—both new construction and retrofits—in residential and commercial buildings. There is no cap to the value of the system, and taxpayers who don’t have enough tax liability to claim the entire credit in one year can roll over the remainder into future years.
To qualify, taxpayers must either “start physical work of a significant nature” or incur at least 5 percent of the total system cost before the end of the year for which they claim the credit. Once they claim it, they have four years to complete work and place the system in service.
Note, however, that the full 30 percent credit is scheduled to start phasing out after Dec. 31, 2019. It drops to 26 percent for projects that start in 2020 and 22 percent for projects starting in 2021. In 2022, the deduction drops to 10 percent for commercial systems and is eliminated completely for residential installations.
Congress has extended the credit several times over the years, and solar advocates and industry groups have been lobbying for another extension. Unless that happens, though, contractors who rely on the credit to incentivize customers—or who are contemplating solar installations on their own facilities—should be ready to move quickly before the phaseout begins.