What Is The Federal Solar Investment Tax Credit (ITC)?March 4, 2021
UPDATE – Congress Extends and Increases the ITC! (3/23/23)
Update: In August 2022, Congress raised the Federal Solar Investment Tax Credit to 30% for solar panels installation that occurs between 2022-2032. This raises it to the eligible tax credit that systems installed on or before December 31, 2019 had received.
The ITC will decrease to 26% for systems installed in 2033 and reduce further to 22% in 2034. Unless Congress renews it again, the tax credit will expire in 2035.
Original Article – March 4, 2021
Congress Extends The Federal Solar Investment Tax Credit (ITC)
In late December of 2020, congress passed a bill effectively extending the Federal Solar Investment Tax Credit (ITC), keeping the credit at 26% for projects that begin installation or construction in 2021 and 2022.
This federal tax credit significantly increases the financial benefits of installing residential and commercial solar panels across the country. Its extension is a huge victory for the solar industry and for those looking to purchase and install solar in the near future.
The tax credit not only functions as financial aid for residential homeowners but also provides extra incentives for the American people to “go solar,” benefiting the environment and their community.
In today’s solar blog, let’s go over the Federal Solar Investment Tax Credit, why it’s important that the credit won extension in congress, and how this potentially affects your wallet.
What Is The Federal Solar Investment Tax Credit?
The Federal Solar Investment Tax Credit is one of the many financial benefits of investing and installing solar panels onto your home. A tax credit is defined as:
“A dollar-for-dollar reduction in the amount of income tax you would otherwise owe. For example, claiming a $1,000 federal tax credit reduces your federal income taxes due by $1,000.” (Source: Energy.gov)
The ITC allows residential homeowners to credit 26% of the cost of installing solar panels onto their home to their federal income tax when homeowners purchase systems and have them installed.
How Do I Apply For the Solar Investment Tax Credit?
Fortunately, applying for the ITC is relatively simple. You simply claim the ITC when you file your yearly federal tax return. Let your accountant or “tax-person” know that you have invested and installed solar panels sometime in the past year.
According to Energy.gov, “the system must be placed in service during the tax year and generate electricity for a home located in the United States. There is no bright-line test from the IRS on what constitutes “placed in service,” but the IRS has equated it with completed installation.”
What Expenses Are Included in the ITC?
What you’ll need to do is keep track of the total gross cost to install the solar panel system and have it ready come tax time.
The addition of solar storage units or systems are also eligible for the ITC, under the condition that they are charged exclusively “by the solar panels associated with the storage system.”
5 Reasons Why The Federal Solar Investment Tax Credit Is Essential
Aside from the obvious financial benefits for individuals installing solar panels onto their homes or businesses, the ITC carries many benefits within the solar industry and the solar community. From national environmental causes to the strain placed upon your local power grid. Let’s go over the further reasons why the ITC is essential to supporting the future of solar power.
1. A National Interest in Solar Energy
The Solar Investment Tax Credit sparks national interest in clean energy, solar power, and the solar industry as a whole. As a federal tax credit, the ITC incentivizes everyday individuals to at least look into solar power as a viable investment and home-energy option, allowing solar energy to spread far and wide across the nation. In fact, solar energy has seen a whopping 42% annual growth since the ITC’s 2006 enactment.
2. Promotes Less Strain On Your Local Utility Grid
The more solar panels that make their way onto residential homes, the less strain there is on the local utility grid, especially during busy hours. The ITC financially helps put those panels onto roofs across the nation, indirectly reducing the strain upon your community’s local utility grids.
3. An Environmental Solution That Benefits Everyone
When talking about residential solar energy and solar panel installations, it’s always essential to mention the environmental benefits. With the ITC proven to promote rapid adoption of residential solar panels, year after year, solar energy is quickly becoming a norm within our nation’s communities, providing green energy wherever placed.
4. Allows Solar Power As a Lifestyle Choice, Not a Luxury
Clean, renewable energy shouldn’t only be a luxury for those that can afford it. The ITC provides necessary financial aid to homeowners who otherwise would not have been able to budget professional-grade solar panels, curving expert installation costs. Essentially, the ITC allows more home and property owners to benefit from and to participate in the always-increasing interest in solar power and technology.
5. Supports Commercial Solar Projects
While the ITC offers incredible benefits for residential solar panel system owners, it provides excellent aid for commercial solar projects, from large-scale corporations to small businesses in Massachusetts and across the country. This tax credit offers businesses an incentive to join residential communities and build a national economy powered by renewable energy, reducing our overall carbon footprint and our reliance on foreign energy resources.
Have Any Questions? Let Us Know!
Here at BlueSel, we highly recommend that you take advantage of all solar incentives and tax credits to begin building your solar-powered home. If you have any questions at all regarding residential solar power and the financial and environmental benefits that come with it, please reach out to one of our offices in Woburn, MA (781-281-8130) or Sandwich, MA (508-289-1117).