The Solar Tax Credit

The first three solar reps I spoke with all got a little uncomfortable when we talked about the Federal tax credit. I think they were possibly not trained well enough to fully understand how the tax credit works in relation to a solar loan. I had to do some digging to figure this out. What the reps told me is that the finance people would go over all of that when we did the deal, then they wanted to move on to another topic. When I’m in a negotiation of any type and feel that happening, I slam on the brakes.

Solar loans are structured to collect no money upfront. The payments are divided equally, with an option usually around payment #18. No matter what time of year you buy your solar package, by the time payment #18 rolls around, you should have filed a Federal tax return and realized your 26% credit. If you usually get $500 back at the end of the year, or maybe owe a little bit, your 26% tax credit is going to trigger a huge refund check.

Don’t rush out and spend that check, because your loan is structured so that payment #18 (or somewhere thereabouts) is for the amount of your tax credit. So if your system is $33k, you will get a tax credit of $8580. Your loan for your $33k system is really a loan for about $24,400, with the #18 payment being for $8580. If you do it that way, then all of your remaining payments will be the same as #1-18.

Any backup system you purchase, such as Powerwalls, also qualifies for the tax credit.

You DO NOT have to put your tax credit toward your solar system. Frankly, the IRS couldn’t care less how you spend it. It is meant to make your solar system more affordable, but there are no penalties or fees if you choose to keep it and go with higher payments on your solar system after payment 18.

I don’t have a suggestion one way or another here. We are going to put our tax credit toward our loan so our payments stay the same as we approach retirement, but I realize the people have lots of different situations or needs or uses for money.