You may have heard lots about the Solar Incentive Tax Credit (ITC) when purchasing your solar system but are a little unsure exactly how it works. In short, the ITC allows you to deduct up to 26% of the cost of your solar energy system from your federal taxes. This is in fact one of the main benefits of financing your solar system opposed to signing a lease or PPA where you will not receive this lucrative tax credit
The Investment Tax Credit is based off of the total amount invested in your solar energy system which can be worth up to 26%. Currently, this 26% tax incentive will be effective through December 31, 2022.
Please remember, Dividend Finance does not offer tax advice. Please consult with your tax advisor if you have any tax-related questions.
Am I eligible for the Solar ITC?
As mentioned earlier, in order to be eligible for this tax credit you must own your solar energy system, leases and PPAs are not eligible. As well, construction must begin on your project prior to December 31st, 2022 to eligible for the 26% tax credit and you must own your home. And not to worry If you don’t happen to have enough tax liability to claim the entire credit in the year you are filing for. If this is the case, you are able to roll over the remaining credits for future years, just as long as the tax credit is still in effect.
How to file for the Solar ITC
Filing for this tax credit is easy! Just be sure to claim the ITC when doing your federal taxes or if you use an accountant, be sure to let them know that you had solar panels installed so they can help you receive this credit. As part of the filing process you will need to complete IRS Form 5695.
12 and 20 Year Loan Examples
Below are some examples of the positive effects of using the ITC payment has when applied towards your Dividend loan.
12 Year Example:
Homeowner #1 purchases their solar system for $20,000 with a 12 Year Loan Term and a 6.99% interest rate. Hence, they are eligible for a $5,200 tax credit (26% of the systems costs). Their pre-incentive payment is currently $116.51 and will rise to $222.11 if they choose to forgo using the incentive to pay down their loan. On the other hand, if they do use the incentive to pay down their loan, their new monthly payments will be $164.36.
20 Year Example:
Homeowner #2 also purchases their solar system for $20,000 but this time with a 20 Year Loan Term and a 6.99% interest rate. Hence, they are also eligible for a $5,200 tax credit (26% of the systems costs). Their pre-incentive payment is currently $116.51 and will rise to $160.09 if they choose to forgo using the incentive to pay down their loan. Although, if they decide to use the incentive to pay down their loan their new monthly payments are $118.47.
Please note the above examples are for illustration purposes only. The impact of paying down your loan will be dependent on the terms of your loan. Feel free to contact us at 844.805.7100 and press 2 and then 1 for information specific to your account. Please consult with your tax advisor if you have any tax-related questions.
The benefits of the Solar ITC
Once you have filed for the Solar ITC you can use this credit to pay down your current loan with Dividend Finance, which will keep your monthly payment low and the significantly limit the total interest earned over the life of your loan.
As a reminder, one of the benefits of the Dividend EmpowerLoan is that we will re-amortize your loan once you pay down 26% of the original principal or after the first 16 months of the loan term (whichever comes first). Meaning using the tax credit to pay down your principal balance is a sure way to keep your monthly payment low.
Lastly, you can opt to make the 26% payment as early as you want – there is no penalty for paying down the loan earlier and saving even more money! Sounds like a win-win, right?
If you have questions regarding using the ITC to pay down your loan, please call Dividend’s Customer Success team at 844.805.7100. If you have questions about the ITC, please call your tax advisor.
Once you have received your credit for the ITC, you can make your payment at anytime by visiting the Dividend payment portal here.
Please note, Dividend Finance does not offer tax advice. Please consult with your tax advisor if you have any tax-related questions.