So what’s a tax credit and how does it work?
First let’s clarify that a tax credit is more powerful than a tax deduction. After you enter your information on your tax returns and take advantage of any available deductions, you get to the bottom line, whether you owe anything to the government or not. If you owe a dollar in tax, but have a tax credit worth a dollar, the tax credit erases your debt (dollar for dollar).
The Louisiana tax credit is worth 50% of the cost of the solar project, while the federal tax credit is worth 30%. Louisiana has the most valuable tax credits for solar in the country. That’s right—that’s not a misprint.
It’s likely that most folks will owe less in taxes than the value of the tax credits. What happens then? We’ll look at how the state and the federal government deal with that residual amount because they do it differently.
Louisiana’s 50% Tax Credit
Louisiana will refund the balance to you. So, if you owe a dollar, but your tax credit is worth $10, the state will pay you $9. Most people do not owe large amounts of state taxes, so many can expect almost 50% of the cost of the solar project to be cash in their pocket. The State credit is claimed on Revenue form 1086, ―Wind or Solar Energy Income Tax Credit for Individuals and Businesses‖.
The Federal 30% Tax Credit
The federal government will not pay you the difference, but allows you to ―roll over‖ and redeem the balance of tax credits in future years. The Federal credit is claimed on IRS form 5695, ―Residential Energy Credits‖.
Caveat: Solar Alternatives does not provide financial or tax advice. Please consult a CPA or professional tax advisor for how solar tax credits would apply to your individual financial circumstances.