Solar Investment Tax Credit (ITC)

solar investment tax credit 30 percentThe Solar Investment Tax Credit (ITC) is a 30 percent federal tax credit for solar systems purchased and installed on residential and commercial properties. For residential installations, the ITC would be applied to the homeowner’s income taxes. The credit is available once the solar system is turned on and fully functional on the homeowner’s house. Take note that there is a difference between a rebate and a credit.

How does the Solar Investment Tax Credit Work?

A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit 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 30 percent of the basis that is invested in eligible property which have commence construction through 2019. The ITC then steps down to 26 percent in 2020 and 22 percent in 2021. After 2023, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent

Commercial and utility projects which have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023. The Treasury and IRS are currently drafting guidance which will inform solar developers of which percentage of ITC they will qualify for depending on when they started their project

solar investment tax credit

What types of solar electric systems qualify for the 30% Federal Tax Credit?

  • ANY complete solar power package, for home or business.
  • Emergency battery backup system, as long as the purchase includes at least one solar panel.
  • Product purchases that expand your existing solar power system and include at least one solar panel.
  • Solar System for RV and boat that has been accepted by the IRS as a second home for tax purposes.

Some Facts Regarding Eligibility of the Federal Tax Credit:

  • The home served by the system does not have to be the taxpayer’s principal residence.
  • If the federal tax credit exceeds your tax liability, the excess amount may be carried forward to the succeeding taxable year.
  • There is no ceiling on the tax credit.
  • Applies to equipment AND installation costs.
  • For Residential Renewable Energy Systems, use IRS Tax Form 5695 to report your expenses. (It can be used for any residence, not just your primary one.) Learn more about residential tax credits.
  • Commercial systems have similar guidelines as residential systems but use IRS Tax Form 3468. Lean more about commercial tax credits.
  • See other state, county, city and utility company rebates and incentives.

* Every individual’s tax situation is different. Please consult a tax professional to make sure your situation is applicable.

Federal Tax Credits in effect through 2021

In December 2015, the Consolidated Appropriations Act extended the 30% credit for residential solar to the end of 2019.  It then steps down over two years and expires completely at the end of 2021.

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • The home served by the system does not have to be the taxpayer’s principal residence.

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Total Kilowatts Installed Since Founded in 2008

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