How to Use the 30% Solar Tax Credit to Your Advantage
Most of life’s largest decisions come down to one thing – money. More precisely, how to save as much of it as possible. This is one of the reasons why solar energy is growing by leaps and bounds; people just want to save money. Sure, the reliability and sustainability of solar are great, but what’s first and foremost on most people’s mind is – how much money will I save?
The funny thing about money is that it is also a reason why some prospects are wary of going solar. The up-front cost of having a system installed can be expensive and while the system will recoup its cost in short time, it is still hard for a lot of people to part with their money.
But how many more people would go solar if they were able to take 30% right off the top of the expense? This is where you can use the federal solar tax credit to your advantage. By helping your clients understand the tax credit and how to claim it, you’ll be able to help them overcome their trepidation. And, time is ticking because at the end of 2019, the tax credit is expected to shrink.
How Your Clients Can Claim the Solar Tax Credit
Your client needs three documents to claim the federal solar tax credit:
Before the client can complete their Form 1040, they will need to complete Form 5695, the form used for claiming Residential Energy Credits.
On Line 1 (qualified solar electric property cost) of Form 5695, the client should enter the total cost of the solar installation, which includes “any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home.”
If the client had any other sustainable energy sources installed, like wind energy, solar water, or a geothermal heat pump, then they would enter their expenses on Lines 2 to 4.
On Line 5, add up the amounts entered in Lines 1 to 4. On Line 6, multiply the amount in Line 5 by 30% (0.30).
Next, unless your client installed fuel cell property, they can skip to Line 12. Here, they can enter in any credit they are carrying over from a previous qualified energy property installation (i.e. if they had another solar system installed the year before). On Line 13 add the amounts from lines 6, 11, and 12.
Line 14 is where the tax claim can get a little confusing because the client will need to use the included worksheet. On the first line of the worksheet, the client should enter amount listed on Line 47 of their 1040 (Line 45 if using 1040NR). Then, they should follow the directions for lines 2 to 9, entering the requested amounts if applicable. On line 10, add lines 2 to 9 if applicable. On line 11, the client will subtract the amount on line 10 (if any) from the amount on line 1 and that number is entered on Line 14 of Form 5695.
On Line 15, the client will enter the amount from either Line 13 or 14, whichever is smaller. If Line 15 is smaller than Line 13, then subtract 15 from 13 and enter this number on Line 16. The amount on Line 16 is the credit that the client can carry forward to next year’s tax filing.
Lastly, the amount entered on Line 15 of Form 5695 is entered on Line 53 of Form 1040 and the client can then complete their 1040 as usual.
Providing your clients with expert guidance regarding how they can take advantage of the tax credit, so they can save as much as possible, will go a long way toward building trust and a strong relationship. And, when you can accomplish this, you’ll notice you’re converting more sales.
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