Your Guide to the Solar Investment Tax Credit

There are plenty of incentives to help you make the switch to solar power, but the federal solar investment tax credit is perhaps the most important of them all. This tax credit program has been helping folks make the switch to solar for over 15 years and it’s a great way to jump start your solar power project.

But what is the solar tax credit? How does it work? Who is eligible? We’ve got all the answers.

What is the Solar Investment Tax Credit?

The solar investment tax credit (ITC), also known as the federal solar tax credit or solar ITC, allows folks with solar to deduct 26% of the cost of installing a solar PV system from their federal taxes.

In 2005, Congress passed the Energy Policy act which created the solar investment tax credit. Thanks to its popularity and success transitioning the U.S. to renewable energy, the federal ITC program received many renewals over the years. The most recent extension came at the end of 2020 and allowed the 26% rate to remain until the end of 2022. In 2023, the rate drops to 22% and disappears completely in 2024.

The solar investment tax credit is an important incentive that has played a huge role in the adoption of solar in the U.S.. Not only has it driven down costs, according to the National Solar Energy Industries Association (SEIA), it has also helped the U.S. solar industry grow by 10,000 percent in the last decade.

Who is eligible for the Solar Investment Tax Credit?

Whether you’re a home or business owner, you can take advantage of this credit and there’s no cap on its value. However, it’s important to remember that you must own your solar PV system in order to receive it. The solar tax credit does not apply to leased solar PV systems or power purchase agreements.

All solar PV system owners should be eligible for the solar ITC and eligibility is based on tax liability. If your solar tax credit amount is greater than the amount you owe the IRS any remaining credits roll over for a period of 5 years. In addition, the ITC program does not have an income limit, which means you may be eligible regardless of your tax bracket.

How does the solar ITC work?

After purchasing a solar PV system, you receive a credit on your federal taxes for 26% of the cost of your system. It’s important to keep in mind that the solar tax credit is NOT a rebate program. Many dishonest solar companies try to convince their clients that they will receive a rebate check for 26% of the cost of their system. This is not true. The solar ITC is a true credit on your federal taxes and you will not receive a rebate check.

The tax credit covers all portions of a solar installation including any battery installs.

2022 Solar Eligibility Checklist

Source: EnergySage

How do I claim the solar ITC?

Solar home or business owners claim the solar ITC when filing their federal tax return for the system’s installation year. For example, if a home or business owner installs solar by December 31st 2022, they will be eligible to claim the solar tax credit on their 2022 tax filing.

We always encourage folks considering solar to speak with their trusted tax professional before signing a contract. Be sure to also let your tax expert know that you went solar so they can assist. If you file your own taxes, check out EnergySage’s step by step guide on how to claim the solar ITC.

It’s important to note that the solar ITC does not increase your federal tax refund. It is a true credit on the amount of taxes you owe to the IRS.

The time to go solar is now! Installing by the end of 2022 ensures home or business owners can claim the federal ITC at its highest rate of 26%. Give us a call or request a quote today!