The Solar Investment Tax Credit (ITC) is a federal policy that’s designed to encourage the proliferation of solar energy systems active in the United States. This tax credit was originally established as a shorter-term incentive in 2005. In 2015, the Solar Energy Industry Associates requested, and received, an extension of the federal solar tax credit. This federal solar tax credit helps both the solar energy industry by essentially reducing the cost of solar systems for solar panel systems consumers.
The History of the Solar Investment Tax Credit
The Energy Policy Act of 2005 created a tax credit for both residential and commercial solar energy systems, meant to last through the end of 2007. The Tax Relief and Health Care Act of 2006 extended the credit through the entirety of 2008. In 2008, the Emergency Economic Stabilization Act extended the residential and commercial tax credit, but also opened the way for utilities and companies paying the alternative minimum tax to take advantage of this credit.
What is the Solar Investment Tax Credit?
The Investment Tax Credit (ITC) is, in its current form, a 30 percent federal solar tax credit. This counts toward the taxes of residential or commercial investors in solar panel systems. The federal solar tax credit applies to homeowners who purchase and install solar panel systems in their homes. They can then apply this credit to their income taxes. In addition, any business that installs, develops or finances a solar panel project can claim the credit.
The solar investment tax credit essentially functions as a rebate that can only be cashed in once you’re doing your taxes. Still, if you’re not hard-pressed for money, it’s well worth the wait to get back (or see a reduction in what you owe on your taxes by) 30% of the money you spend on improving your home’s power network. It’s an excellent time to pursue upgrading to solar panel systems.
How does the Solar Investment Tax Credit Work?
Tax credits are dollar-for-dollar reductions in income taxes that a consumer or business would have paid to the federal government. The ITC value depends on the worth of the solar panel systems installed. Regardless of whether it’s residential or commercial, the tax credit earned is equal to 30 percent of the cost of solar systems installed. This tax credit will shrink in the future, dropping to 26 percent for projects begun in 2020 and down again to 22 percent for projects that begin in 2021. In 2021 the residential credit will no longer be offered. However, the commercial and utility credit drops and permanently remains at 10 percent.
What remains clear is that the benefits for investing in solar panel systems are considerable. You’ll need to act relatively soon to take advantage of the tax incentive, since it’s slated to start decreasing in 2020! The tax credit is a great way to reduce the cost of solar systems for residential properties, so make use of it while you can.