What is the Federal Solar Tax Credit (ITC)?
Investment Tax Credit for Solar
The investment tax credit (ITC), also known as the federal solar tax credit, allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value.
Thanks to the popularity of the ITC, and its success in supporting our transition to a sustainable economy, Congress has extended its expiration date multiple times. Now, the solar investment tax credit is available to business owners in some form through 2022.
- 2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.
- 2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
- 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.
How Does the Solar Tax Credit Work?
As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. However, remember that if you sign a lease or PPA with a solar installer, you are not the owner of the system, and thus you cannot receive the tax credit.
You can claim the investment tax credit for solar when you file your yearly federal tax return. Remember to let your accountant know your business has gone solar in the past year, or contact us so our solar finance specialists can help you get the most out of your ITC.