First Things First: Why Go Solar?
Solar popularity continues to surge more and more each year. In fact, in the U.S. alone, there are now over 1.5 million solar panels in use. Most homeowners cite two main reasons for going solar: reduced carbon emissions and significant savings on their energy bills. However, that’s just the tip of the benefits iceberg.
Before we get into tax credits, let’s explore a brief overview of some of the best reasons to go solar.
1. Save on electric costs
According to a recent study, the average electric bill in Missouri is roughly $116 a month, making it the 15th highest in utility costs nationwide. With the wildly varied weather of the Heartland, energy costs are known to dramatically spike throughout the year, which leads to erratic monthly bills. Installing solar panels can drastically decrease or even eliminate the electric portion of your monthly energy payments. Additionally, electricity prices continue to climb each year due to factors like inflation, fuel costs, and more. By going solar, you can accurately budget and bypass unpredictable yearly surges.
2. Enjoy a significant ROI
Did you know the average homeowner recoups the cost of their solar panel system within about 7 to 8 years and typically sees an ROI of 20 percent or greater? Similarly, homes with solar panels have been shown to sell about 17 percent higher compared to those without. The long-term advantages of installing a solar energy system are significant, and these impressive stats are expected to jump exponentially as Americans become increasingly educated on the benefits.
3. Reduce carbon emissions and help the environment
Buildings represent 38 percent of all U.S. carbon emissions and installing a solar panel can reduce your footprint considerably. For example, the average residential solar panel system is shown to eliminate anywhere from 3 to 4 tons of carbon emissions annually. That equates to approximately the same impact as planting more than 100 trees a year.
While the long-term cost and environmental benefits of going solar are a no-brainer, oftentimes homeowners and businesses can hesitate to take the leap due to the initial up-front investment. However, the cost of solar energy continues to drop significantly to minimize this hesitancy. In fact, it declined a whopping 76 percent between 2009 to 2017.
What are the Available Ways to Cut Costs?
While solar energy costs continue to decline, there is also a myriad of federal credits, rebates, and programs available to decrease the price of your investment even further. Let’s dive into each option, including updated options for 2021, which makes now the perfect time to plan your switch.
1. Federal Tax Credit (26% Credit EXTENDED to 2022)
What Is It?
In 2006, the federal government introduced a solar tax credit (known as the Federal Solar Investment Tax Credit or ITC) in order to boost the industry through incentives. And it’s working, too. Since its start, the ITC has helped grow the U.S. solar industry by more than 10,000%. In essence, homes and businesses going solar can qualify to take a percentage of their entire system’s cost off of their federal taxes. The credit can be used for the year it was installed or over the span of five years according to preference.
The Federal Tax Credit is currently 26% and that amount was originally set to decrease to 22% at the end of 2020. However, on December 27th, 2020, new legislation was passed that extended the 26% Federal Tax Credit through the end of 2022. Installation slots filled up quickly in 2020 and we expect the same in 2021 as homeowners try to take advantage of this credit extension. Remember, the average time period to get a solar system up and running is 3 months. In order for your system to be installed to qualify for this credit in 2021, we recommend contacting the experts at Sun Solar as soon as possible to begin the process. Don’t let the year get away from you.
After 2022, this tax credit is set to expire. At that point, homeowners will no longer be able to receive this credit and businesses will only qualify for 10%.
How Does It Work?
This credit includes panels, inverters, labor, and additional equipment and installation costs. There are a couple of major guidelines in order to qualify for this tax credit. First, you must be the owner of the solar energy system (leasing does not apply). Secondly, you must be the taxpayer.
After verifying your eligibility and having your system installed and activated, homeowners must complete Form 5695 on residential energy credits. Then, simply use that to fill out Form 1040 (AKA your individual tax return) for the year you purchased your system by the appropriate deadline.
2. Solar Utility Cash Rebates
What Is It?
Numerous Missouri-based utility companies offer exclusive cash rebates for going solar. Rebates are available during specific timeframes or until all allotted funds are exhausted, whichever comes first. Rebates can also be paired with the Federal Tax Credit for even more savings.
How Does It Work?
- Ameren: For 2021, Ameren is offering solar rebates at $0.25 per watt (or $250/kW). By 2023, they have pledged to invest $14 million additional dollars into company-owned solar generation.
- Columbia Water and Light: Columbia Water and Light offers a rebate tier, which includes: 0-10 kW: $375-$625 per kW, 10-50 kW: $300-$500 per kW, and 50-100 kW: $150-$250 per kW.
- Empire/Liberty Electric: Customers can qualify for a rebate of $0.25 per watt (or $250/kW) for systems operational between July 1, 2019, and Dec. 31, 2023. Rebates will expire on Dec. 31, 2023.
During the planning process, check with your utility company to confirm your eligibility and ensure rebate funds remain.
3. Solar Energy System Equipment Depreciation Through MACRS
What Is It?
This is one of the easiest ways that businesses can keep costs down. The Modified Accelerated Cost Recovery System (MACRS) allows businesses to recoup the investment of their solar energy equipment through a deduction on their taxable income over five years. In essence, this allows businesses to reclaim the cost of their solar energy system’s natural wear and tear over time. And thanks to the Tax Cut and Jobs Act of 2017, businesses going solar can now receive a 100% bonus depreciation on qualifying equipment installed after Sept. 27, 2017, and before Jan. 1, 2023.
How Does It Work?
MACRS can be paired with the Federal Tax Credit to maximize savings. However, if used together, the IRS will reduce depreciation by half of the tax credit. For example, this would mean reducing by 13% in 2020 (since the current IRC rate is 26%). There is the option to recover your money within the first year of purchase or to spread it out over five years according to preference.
4. Small Business or Agricultural REAP Grants
What Is It?
If you are an agricultural producer or a small business located in a rural area, you may qualify for a REAP grant (Rural Energy for America Program). The REAP grant provides assistance to purchase or install renewable energy systems or even make improvements to existing technology.
How Does It Work?
Most businesses that are located outside of metropolitan areas not only receive a loan but also 25% of their entire expenses related to going solar (up to $500,000). The USDA accepts applications for REAP funding year-round. Interested applicants should contact their state rural development energy coordinator to get started.
5. PACE Loan for Missouri Businesses
What Is It?
PACE, which stands for Property Assessed Clean Energy Program, is a Missouri state offering to assist businesses with adopting energy-efficient methods. This program provides 100% financing to businesses to front the costs of their solar energy systems for up to 20 years. Thanks to PACE, businesses can repay their investment over time without any initial out-of-pocket expenses.
How Does It Work?
Each year, businesses repay a portion of their system’s cost through an assessment that is added to your annual property tax. Because annual energy savings may offset tax payments, this can lead to a positive cash flow. For more information, visit the Missouri Clean Energy District’s website.
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