Federal Solar Panel Tax Credit Extended
The Solar Investment Tax Credit (ITC) has been a significant driver for solar adoption. Offering a 26% rebate (formerly 30%) on solar installations, it's just one of the compelling reasons why many people are choosing solar energy today.
Extended renewable energy tax credits have been included in a $1.4 trillion federal spending package alongside a $900 billion COVID-19 virus relief bill. The solar investment tax credit (ITC), originally set to decrease from 26% to 22% in 2021, will remain at 26% for two more years.
This means solar projects across all sectors — residential, commercial, industrial, and utility-scale — starting construction in 2021 and 2022 will still qualify for a 26% tax credit. In 2023, all markets will transition to a 22% credit, with residential dropping to 0% and commercial/utility holding a permanent 10% credit from 2024 onwards.
The Solar Investment Tax Credit (ITC) is a federal credit enabling you to deduct 26% of solar system installation costs from your federal taxes. If your tax liability doesn't cover the entire credit, you can roll it over for up to five subsequent years. The catch? You must purchase or finance the solar system, excluding solar leases or power purchase agreements.
The Solar Investment Tax Credit
The Solar Investment Tax Credit (ITC) was established in 2006 to stimulate the growth of the emerging solar power industry. Prior to this, solar energy was costly compared to traditional fossil fuels. It was primarily favored by environmentalists, off-grid enthusiasts, and scenarios where its benefits outweighed its high price tag.
However, with increasing public support for renewable energy alternatives, the Federal Government introduced the Investment Tax Credit to make solar more affordable and competitive. This move propelled the solar industry into a thriving sector.
Over the years, the Investment Tax Credit played a crucial role in driving exponential growth in the solar industry. Like other state and utility rebates that phased out over time, the ITC was also designed to gradually decrease and eventually expire. That phase-out period is set to occur over the next few years.
Those in the solar industry have faced the looming threat of the Investment Tax Credit disappearing before. Originally slated to expire in 2007, it was saved by congressional legislation in 2015. This extension applies to residential solar installations, while utility-scale and commercial projects may still qualify for renewable energy credits beyond that timeframe.
Commercial Solar Projects
While commercial projects can still benefit from the federal Investment Tax Credit, residential rooftop and ground-mount solar installations are set to lose this incentive after 2021.
While commercial projects can still benefit from the federal Investment Tax Credit, residential rooftop and ground-mount solar installations are set to lose this incentive after 2021.