What is the Federal ITC?
The Federal Investment Tax Credit, sometimes referred to as the Solar Tax Credit, is a tax incentive meant to ease the initial costs of switching to a renewable energy source. The policy enforcing it was originally passed in 2005 as a means to encourage clean energy usage across the U.S. by making it more affordable. As the clean energy industry has grown and options like solar have become more accessible, the conditions surrounding the tax credit have been adjusted.
How Does the Solar Credit Affect the Costs?
When the Federal ITC was first implemented, it offered new solar system owners a credit for 30% of the project costs. However, the tax credit was planned to decrease over the next few years. Since solar has become more affordable than it was in the early 2000s, there’s not as much of a need for the incentive.
As of 2020, the ITC allows owners a 26% credit. This percentage is temporary as it’s continuing to be reduced until 2022.
Who Benefits from the Solar Credit?
The tax credit was created for owners of new solar panel systems. This means that whether the project is for a private residence, or a large commercial site, the owner could deduct a percentage of the project costs from their taxes. Homeowners can benefit from the credit until 2022, when the ITC will only apply to commercial project owners.
So What Does This All Mean?
This year is the best time to invest in a new solar project. Since the ITC is becoming more restrictive, this year will allow homeowners and business owners the biggest discount on a new installation. In just two years, only commercial solar projects will qualify for the reduced ITC percentage of 10%, while residential systems won’t qualify at all.