What Is the Solar Investment Tax Credit (ITC)?
The solar Investment Tax Credit is one of the most important federal policies to support the expansion of solar energy in the United States. The ITC is a 30% tax credit for the solar system installed on residential, commercial, and large-scale utility solar farms which enables you to deduct 30% of the cost of solar installation from your federal tax liability and there is NO cap for that!
The most important benefit of the solar tax credit is to provide financial support for customers and make the process of shifting toward a solar power system more affordable, as well as providing market assurance for companies to develop long-term investments that drive competition and technological innovation, which result in lower energy costs for consumers.
How the Solar Tax Incentive Works?
The most important consideration to be eligible for the solar tax credit is that you own your solar energy system. Either as a business owner or homeowner you can claim your tax credit directly. If you don’t have enough tax liability to claim your whole tax credit in the first year, don’t worry, you can rollover the remaining credits across the next 5 years.
On average, American households use 11,000 kWh electricity per year and to offset all of that electricity use, we would recommend an 8 kW solar system. If installed by LighthouseSolar, this would cost you an estimated $20,000 (before tax credits and rebates) which makes you eligible to receive $6,000 solar tax credit. The net investment, without considering any local rebates, is thus $14,000.
How Long will the Solar Tax Credit be in effect?
There has been a much debate on the expansion of solar tax credit. Congress passed a bill in 2015 and the tax credit is now available to homeowners and commercial sectors with different rates through 2021.
However, the full 30% tax credit WILL NOT be available after 2019 and will drop by 4% as of January 2020. The tax credit will thus begin a slow rampdown through 2022 as follows:
2019: The tax credit remains at 30% of the cost of the system. This means that if you get your system before the end of 2019, you will have the opportunity to get 30% tax credit for your solar panel system.
2020: Owners of a new residential and commercial solar power system can only deduct 26% of the cost of the system from their taxes.
2021: Owners of a new residential and commercial solar system will be able to deduct 22% of the cost of the solar power system from their taxes.
2022 onwards: Only owners of a new Commercial solar PV system can deduct 10% of the cost of the system from their taxes. There is No Federal Tax Credit for Residential solar energy systems.
In summary, the solar Investment Tax Credit is applied to your solar power system cost and the amount you receive varies based on the solar system size you choose. A simple example of the differences in the solar tax credit in 2019-2022 for a 13-kW solar system size is shown below:
Changes in your savings as Solar Tax Credit changes in 2019-2022