How Does the Federal Solar Tax Credit Work?
Jan 04, 2021
by Tara McDermott
HISTORY OF SOLAR ITC
Originally established by the Energy Policy Act of 2005, the 26% ITC (Investment Tax Credit) has been a success in supporting the country’s transition to renewable energy. The 2020 spending bill has extended the solar ITC at its current level of 26% for two additional years, through the end of 2022.
HOW DOES IT WORK?
The minute you own a solar system, whether it is residential or commercial, you are eligible for this Federal Tax Credit. The 26% tax credit means that as a residential or commercial client, you can claim 26% of the cost of the system through federal taxes. This can be claimed when you file for your yearly federal tax return. You can receive 26% for systems commencing construction in 2020-2022, 22% for systems commencing construction in 2023, and 10% for systems commencing construction in 2024 or thereafter. Systems placed in service after 2025, regardless of when they commenced construction, can receive a maximum tax credit of 10%.
In 2021, owners of new residential and commercial solar can deduct 26% of the cost of their system.
In 2023, owners of new residential and commercial solar can deduct 22% of the cost of their system.
In 2023 and beyond, the residential credit drops to zero while the commercial credit drops to a permanent 10%. Commercial and utility-scale projects placed in service before January 1, 2026, may still qualify for the 26% or 22%.
For more information on ITC, click here.