by Jane Stromberg When considering going solar for your home or business, it is helpful to think about all the elements involved to make an informed decision about your energy future.
Vermonters across our resilient, green state are embracing solar energy for the increased energy independence, financial payoff, and decreased carbon emissions—something that benefits us all. Not to mention, when folks invest in locally produced and distributed energy in Vermont, it stays in Vermont. According to the latest Energy Action Network report, Vermonters have spent an average of almost $2 billion a year over the last decade on imported fossil fuels, with 75% of those dollars draining out of state. In 2018 alone, 1.4 billion drained out of our state economy.
Such a beneficial technology like solar should be accessible and affordable to all Vermonters, and that’s where incentives come into play.
The biggest incentive is the Federal Investment Tax Credit, or the ITC.
The ITC is credit against your income tax liability. Importantly, it’s a credit, not a rebate, which means you need income to claim the incentive. This credit is a percentage of the cost of a solar PV system. Currently, this is set at 26%.
However, this incentive is set to step down to 22% at the end of the year. It will hit zero for residential installs and 10% for commercial installs in 2024.
Criteria to claim the credit:
1. Your PV system must be installed and prove that it is producing power before December 31st, 2022, for the 26% credit, and December 31st, 2023, for the 22% credit. So, if you’re considering going solar sometime soon, you’re in luck.
2. Next, the system must be located at your residence in the United States. It can also be applied to an off-site community solar project if the electricity generated is credited against, and does not exceed, your home’s electricity consumption. For commercial projects, the system must be used by a business subject to U.S. federal income taxes.
3. You need to own the system. This is where the discussion of financing vs. leasing is important. Leased systems cannot take advantage of this incentive. But you’re eligible if you either bought the system in cash or financed it.
4. The system must be a new one or is being used for the first time as the credit can only be claimed on the “original installation.”
What does it mean that the tax credit is going down? It means a few things. If you’re deciding what your next home project is, now is a good time to put solar at the top of that list and get the biggest payback.
If you’re on the fence, there’s no need to worry—the sky is not falling. With or without this incentive, solar is still a worthwhile investment that will pay off in time regardless of how much incentives can trim off at the top. But the incentives certainly help.
We like to think of going solar vs. sticking with same old electric utility bills as renting vs. buying a home: when you purchase a home and pay a mortgage, that monthly expense is covering the bill and investing in something. Renting, on the other hand, might as well be money flying out the window never to be seen again. It’s the same with solar—instead of sending money to the utility month after month, you’re paying off your system, all the while, your panels are making energy for you.
Over the life of your system—which can be 25-plus years—that initial investment into the panels, inverters, and installation will be less than if you had been sending money to the utility that entire time.
Paul Lesure, President of Green Mountain Solar says, “Vermont has been a national leader in renewable energy, and the ITC has certainly helped. However, when people talk about decreasing incentives like it’s a make or break for solar—that’s too narrow a view. These decreases do impact the payback period on a solar investment, and to some degree the adoption rate, but solar is still a valuable way for people to own their electricity and see big savings on their bills.”
**Disclaimer: This article provides a broad overview of the federal investment tax credit for people interested in residential and commercial solar PV. It does not take the place of professional tax advice or other professional financial guidance, and we would recommend reaching out to a tax expert.
Jane Stromberg, Outreach Coordinator at Green Mountain Solar in South Burlington, VT.