To qualify for the solar federal tax credit, you must meet all of the following requirements:
You must own your home (renters are excluded, unfortunately).
Your Federal Tax liability must be sufficient to qualify for the 30% tax credit.
You must own your solar panels.
This last point isn’t quite as obvious as it might seem since many homeowners today actually lease their solar systems through third party companies. While leasing may make sense in some situations, it means that the leasing company gets to claim the tax credit instead of you! By contrast, homeowners that buy their panels outright or finance them with a loan (from Mosaic, for example) do get to claim the tax credit.
Tax Credit Versus Rebate
It’s important to understand that this is a tax credit and not a rebate. Tax credits offset the balance of tax due to the government (therefore, if you pay no tax, there is nothing to offset and you can’t take advantage of it). Tax rebates are payable to the taxpayer even if they pay no tax. While most people qualify for the federal tax credit, there are some who do not. Anyone who does not pay federal income taxes will not be able to benefit from the tax credit. And, if you’re on a fixed income, retired, or only worked part of the year, you may not pay enough taxes to take full advantage of this credit.
If you do pay sufficient federal taxes the year that you finance or purchase your system, then the credit can be applied to pay off the taxes paid. If you already paid taxes by withholding them from your paycheck, the federal government will apply the tax credit to a tax refund. This refund can be used to pay down the balance on a Mosaic loan. It’s important to note that the tax credit can be carried forward one year, which means that you can use any remainder from this year as a credit towards next year’s taxes.
Homeowner #1 buys a $30,000 solar system, meaning they are eligible for a $9,000 tax credit (30% of system costs). Through their employment they pay the government $9,000 in taxes, but this is withheld on their W-9 so they end up paying nothing when they file. In this example, when the federal tax credit is applied to the $0 balance they pay the government, they receive a tax REFUND of $9,000 that they can then apply to their Mosaic loan – or keep if they choose.
Homeowner #2 also buys a $30,000 solar system but they only pay the federal government $4,500 in taxes because they were on a fixed income. This customer did not withhold any money from their paychecks and pays the full $4,500 when they file. When the $9,000 tax credit is applied, they can only claim $4,500 of it because they only paid that much in taxes. In this example, the customer does not have to pay any taxes that year but they also will not receive a refund check from the IRS.
The upside is that any remaining tax credit can be carried forward and applied to next year’s taxes. In this scenario, if Homeowner #2 pays the government at least $4,500 in taxes for the following year, they can utilize the rest of the credit.
How do I Use the Tax Credit to Pay Down My Mosaic Loan?
Mosaic’s loan is built to be flexible, friendly and affordable. It’s structured so that if you use your federal tax credit or other savings to pay down your loan balance by 30% within 18 months, you’ll lock in a low monthly payment for the duration of the loan.
Here’s how it works: For the first 18 months of your loan, your monthly loan payment will be the amount quoted to you in your loan agreement. After 18 months, Mosaic readjusts your monthly loan payment depending on what percentage of the loan you paid down.
Here’s how the adjustment works:
If you make the whole 30% payment by month 18, you will lock in the low monthly payment you started with. If you pay down less than 30%, your monthly payments will go up after month 18. If you pay down more than 30%, your monthly payments will go down after month 18. It’s your choice!
Bottom line: Regardless of how much you pay down, your interest rate will never change, and you will never have to pay more than your total loan amount (unless you incur late payment fees). We highly recommend that you consult a tax advisor about your personal federal tax credit eligibility to determine if you can take advantage of the tax credit and apply it to your loan.
We also have a wonderful customer support team waiting to answer any additional questions you may have.