Last year and several years before that, a US taxpayer who installed a solar system on his roof was able to get a 30% tax credit on the cost of that system. In 2020, this tax credit was reduced to 26% and will decrease to 22% next year.
Confused about what a tax credit is? Basically, cash is cash if you owe taxes at the end of the tax year. “A tax credit is a dollar-for-dollar reduction in the income tax you would otherwise owe. For example, if you claim a $1,000 tax credit, you reduce your federal taxes due by $1,000. US Department of Energy writes.
With the solar tax credit looming, and rooftop solar power is a decent part of Tesla’s business. The company recently tweeted a reminder of the upcoming deadline.
For clarity, this policy change applies to any solar power system, not just a Tesla system. And I always recommend anyone considering going solar to get quotes from several solar installers in your area (it’s always free to get a quote). However, from what we’ve seen this year, it seems very difficult to compete with Tesla. Tesla rooftop solar panels ($100 off if you use this link, my Tesla testimonials link) at a price well below the national average. While the US average is $2.19/watt, Tesla now offers rooftop solar PV at a consistent price of $1.49/watt across the country — both prices factor in the federal 26% solar tax credit.
If you don’t understand how that could be the case, note that I spoke to Elon Musk about this a few months ago and the explanation makes a lot of sense to me. The short story is that Tesla doesn’t have huge marketing/customer acquisition and financing costs. With consistent system sizes, Tesla spends less time (money) on system customization. Elon told me:
“The cost of solar panels is only ~50 cents/watt. Mounting hardware, inverter, and wiring is ~25 cents/watt. Installation is ~50 cents/watt depending on system size.
“The other solar companies spend a lot of money on vendors, advertising and complex financing instruments. We are not. “
This is one of the big benefits, or synergies, that Elon pointed to when Tesla gobbled up SolarCity in the second half of 2016. Tesla’s brand is so well known and so many people go to Tesla stores or Tesla website every day to buy cars that have basically no cost to make buyers also consider Tesla’s solar power systems draw. Other rooftop solar companies have to spend a lot of money to be in the eyes of customers, and these additional business costs increase the price of their solar power systems.
Overall, solar power is the world’s cheapest option for new power capacity due to years of solar panel cost reductions, the International Energy Agency recently reported. In the United States, solar, wind, and natural gas account for nearly all new power generation capacity, and solar is often #1. While the cost of solar panels is sure to continue to fall, the US solar tax credit offers a good financial boost, driving many purchases must stimulate. Of course, rooftop solar PV costs much more than utility-scale solar PV per kWh, but rooftop solar solar competes with retail electricity prices, not wholesale electricity prices.
In addition to a traditional rooftop solar array, Tesla also offers its unique Tesla Solar Roof – solar roof tiles that serve the dual purpose of generating electricity and functioning as traditional roof tiles. This system costs more than a traditional solar power system, but if you still need to replace (or build) a solid roof, it can be inexpensive. One of our writers has one of these Tesla solar roof systems and explained it in detail using the calculations he did for his own roof. (Although, the price of a solar roof system is much lower now than it was a year ago.) Importantly, this Tesla solar roof option is also eligible for the US solar tax credit.
Regarding this tax credit, let’s revisit why it expires on January 1, 2021 and how the tax credit exit is planned.
At one point, Congress decided that falling solar energy costs meant the solar tax credit should be phased out. (Don’t mention that fossil fuels still benefit from various subsidies, or that we urgently need to move away from fossil fuels to stabilize our climate.) The tax credit fell from 30% to 26% on January 1st. 2020, and the next drop (to 22%) is on January 1, 2021. Barring a renewal or extension by Congress, the US solar panel tax credit will be eliminated entirely on January 1, 2022 The cheapest rooftop solar you’ll find in the coming years ago is probably what you can get now.
“The system needs to be commissioned during the tax year and generate electricity for a home in the United States. There is no IRS bright line test, which means commissioned, but the IRS has equated it to a completed installation,” writes the Department of Energy (DOE). There is no maximum credit – the total tax credit is simply based on the cost of the system and your tax liability. “The following costs are included:
- Solar PV modules or PV cells to power a roof fan (but not the fan itself)
- Contractor labor costs for on-site preparation, assembly or initial installation, including permit fees, inspection costs and developer fees
- System balancing equipment, including wiring, inverters and mounting equipment
- Energy storage charged exclusively by the associated solar PV modules, even if the storage is commissioned in a later tax year pending the installation of the solar system (however, the energy storage is still subject to installation date requirements)
- sales tax on eligible expenses.
State or local tax credits or rebates may also be available in your area.
