Tax Day: What is Solar ITC?
Caroline "EPC Extraordinaire" Coppola
It’s May 17th: Tax Day 2021 is here! Today marks the day that millions of Americans have filed, or will file, their 2020 taxes in hopes of receiving a tax return. Tax Day is an important day for many people. Soon, employees will get their tax returns back and will start paying off bills, start home improvement projects that they’ve been waiting for, or plan a beach getaway. However, what if there was a way to get more back on your tax return? Well, there is! Homeowners that decide to go Solar before 2024 may be eligible to receive The Solar Investment Tax Credit (ITC).
The Solar ITC is currently a 26 percent federal tax credit claimed against the tax liability of residential and commercial and utility investors in solar energy property. The residential ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems and have them installed on their homes. If a homeowner’s tax liability in any given year is less than the amount of the Investment Tax Credit, the homeowner has five years from year one to get the full amount of the ITC.
A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 26 percent of the basis that is invested in eligible solar property which has begun construction through 2021.
The Solar Investment Tax Credit is one of the most important federal policy mechanisms to support the growth of solar energy in the United States. Since the ITC was enacted in 2006, the U.S. solar industry has grown by more than 10,000% - creating hundreds of thousands of jobs and investing billions of dollars in the U.S. economy in the process.
Extended renewable energy tax credits have been included in a $1.4 trillion federal spending package alongside a $900 billion COVID-19 virus relief spending bill. The solar investment tax credit (ITC), which was scheduled to drop from 26% to 22% in 2021, will stay at 26% for two more years.
This means that solar projects in all market segments — residential, commercial, industrial, utility-scale — that begin construction in 2021 and 2022 will still be able to receive a tax credit at 26%. All markets will drop to a 22% tax credit in 2023, and the residential market will drop to 0% while the commercial and utility markets will sit at a permanent 10% credit beginning in 2024.