Solar Panels and Dollar Signs

I was actually looking forward to doing my taxes this year.

As a homeowner who installed a solar energy system in 2020, my household is eligible for a big federal tax credit. The Solar Investment Tax Credit (Solar ITC) is a federal solar tax credit that currently offers a 26% credit for the cost of solar systems built on residential and commercial properties. For a residential solar system like ours, the Solar ITC translates into thousands of dollars worth of federal tax credit.

That’s the good news.

The bad news? The Solar ITC is nonrefundable. In other words, it only reduces our tax liability, which doesn’t necessarily translate into a bigger refund. Due to our current household income level, we don’t have much tax liability. Therefore, we can only claim a small fraction of our Solar ITC this year.

Thankfully, the unclaimed portion of the credit does roll over to future years. But if our household income doesn’t increase significantly in the next few years, it may take us a decade or more to claim the full balance of the credit (if it even exists for that long).