The solar investment tax credit (ITC) passed by Congress in 2005 has been a great success. Solar power generating costs have fallen more than 75% since then, making solar energy price competitive with most other energy sources even without tax credits! For those who want to reap the greatest benefit out of their solar investment, now is a great time to act. Here are five things to know about the solar ITC:
1. It’s winding down
The residential solar investment tax credit is set at 26% of the total cost of a solar installation in 2021, and 2022, falling to 22% in 2023. Congress has extended the solar ITC three times (in 2007, 2015, and 2020), and it is currently scheduled to go away in 2024.
2. It’s a dollar-for-dollar tax offset
The solar ITC is a credit against federal income taxes, not just a deduction. That means one dollar of federal income taxes is subtracted for every dollar of solar credits accrued. For example, a $25,000 solar installation in 2020 yields a $6,500 tax credit; it falls to $5,500 for installations completed in 2021, and $0 in 2022. If the size of your tax credit is greater than the amount of federal income taxes you owe, you can carry forward the unused portion of the credit to offset taxes due next year.
3. It’s designed for primary residences
The residential solar ITC is aimed at people who own their homes rather than rent them, and purchase their solar installations outright rather than leasing them.
4. Batteries qualify for the solar ITC, too
The cost of a home battery installation also qualifies for the solar ITC – provided you use solar power to charge it. As with direct solar installations, there’s no limit on the size of the tax credit for batteries. (The carry-forward principle still applies on unused credits.) The IRS also offers other nonbusiness energy property tax credits or primary residence owners. Many states and utilities also offer incentive programs and rebates for solar property owners. You can also claim both solar and EV tax credits in the same tax-year filing, but you must have enough tax liability to claim both credits.
5. Commercial customers get an even better deal
Commercial property owners also qualify for the solar tax credit. But rather than ending in 2024, the commercial solar ITC becomes permanent at a reduced rate of 10%. Commercial customers also get to claim the maximum credit as long as the installation begins before the end of the year.
Do you have more questions? Solaflect Energy is your home energy management partner to help you navigate the financing of solar energy and home battery installations. Contact us, and let us guide you through the process of going solar.