Solar Investment Tax Credit Explained in 5 Minutes - HomePro Solutions Solar Company

Solar Investment Tax Credit Explained in 5 Minutes

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solar investment tax credit explained

The federal government uses tax credits and deductions to incentivize people to take steps that improve the world as a whole. One prominent example is the Solar Investment Tax Credit (ITC).  The Solar Investment Tax Credit was put in place to support the growth of solar technology and energy in the United States. It was enacted back in 2016 and since that time, the solar industry has grown by more than 10,000 percent.

The result is that billions of dollars have been invested in the solar energy industry, leading to the creation of hundreds of thousands of jobs. Clearly, the Solar ITC has been a major success which is why the credit was extended. This has led to a sense of stability both for businesses and investors. Therefore, the Solar ITC presents a tremendous opportunity for homeowners and businesses to reduce their carbon footprint, save money on their utility bills, and reduce their tax burden.

Facts About the Solar Investment Tax Credit

Some of the key facts about the Solar Investment Tax Credit include:

  • The Solar ITC provides a 26 percent tax credit for residential and commercial solar systems.
  • The Solar Investment Tax Credit has helped the solar industry in the United States achieve an average annual growth of 50 percent during the past ten years alone
  • Eligibility for the Solar ITC is based on a commence construction standard, meaning it is applied during the year construction starts
  • The Solar ITC was extended in 2015, allowing everyone to make long-term plans to improve the solar industry as a whole, which still represents only 25 percent of energy production in the United States

With the solar energy tax policy, this provides continued stability and investment opportunities for homeowners and business owners alike. The solar energy will power discussions about decarbonization in the future.

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The Impact of the Solar Investment Tax Credit

Without a doubt, the Solar ITC has been one of the most influential federal policy initiatives to power the growth of clean energy in the United States. Without the Solar ITC, the solar energy industry would not have grown as quickly as it has.

When the government extended the Solar ITC, they contributed to the stability of the industry. As a result, research continues to drive down the cost of solar energy systems, making them more affordable for everyone. The result is a stronger, cleaner economy.

How Does the Solar Investment Tax Credit Tax Credit Work?

The Solar ITC is a scalable tax credit that can be applied against the tax liability of both residential and commercial solar energy construction costs. This means that the tax credit can be claimed directly against someone’s personal income taxes. The tax credit is applied when homeowners and business owners purchase and install solar energy systems on their property.

Because this is a tax credit, this is a dollar for dollar reduction in someone’s income taxes. The difference between a tax credit and tax deduction is as follows:

  • A tax deduction is a subtraction from someone’s gross taxable income
  • A tax credit is a subtraction from someone’s actual tax liability

In this manner, a tax credit provides a substantially larger tax savings than a tax deduction, making the Solar ITC that much more powerful. The percentage of the tax credit is taken as a percentage of the total cost of the solar energy system.

In order to take full advantage of the Solar ITC, it is important for everyone to start their solar energy construction projects as soon as possible. The application of the Solar ITC is as follows:

  • There is a 26 percent tax credit available for projects that start construction in 2020
  • There is a 22 percent tax credit for projects that start construction in 2021
  • After 2021, there is no tax credit for residential projects while the commercial credit remains at 10 percent permanently

For this reason, it is important to start solar energy construction projects as soon as possible. This translates into a larger tax credit.

Installing Solar Energy Equipment on New Residential Homes

If a homeowner buys a new home that already has a solar system in place and owns the system totally, then the Solar Investment Tax Credit is applied for the tax year during which they moved into the home.

If a homeowner leases the solar energy system or purchases electricity from the solar energy system (but they do not own the system), then the Solar ITC is claimed by the company that owns the solar energy system.

Invest in Solar Energy Today

These are a few of the most important points that everyone should know about the Solar Investment Tax Credit. More information on the solar investment tax credit can be found in the Solar ITC fact sheet. This is a great way for homeowners and business owners to save the environment and reduce their tax burden.  If you have further questions about installing solar panels on your home or business or how you can save money with solar, the best thing you can do is explore your solar power options with a qualified professional. Contact HomePro Solutions today. We have the technical know-how and customer service expertise necessary to ensure that every solar power project is a success.

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