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What is the Federal Tax Credit?

The Federal Investment Tax Credit (ITC/Solar Tax Credit) is a tax incentive meant to ease the initial costs of going solar. This incentive applies to the owners of new solar energy systems, meaning that the tax credit can be claimed for the year of the system’s installation.

If you are looking to finance your solar energy system, visit Solar Financing

In simple terms, Federal Tax credit is a dollar-for-dollar reduction in the income tax that you would otherwise have to pay. For instance, getting a $1500 Federal Tax Credit would mean you have to pay $1500 less at year-end in your income taxes.

For current information on solar incentives, visit the Database of State Incentives for Renewables and Efficiency website.

This Federal incentive was created to increase the growth potential of solar energy in the United States. Since this credit percentage was enacted, it has created thousands of jobs, allowing the investment of billions of dollars in the US economy. The average annual growth rate of solar energy was over 50% in the last decade alone.

How Has the Tax Credit Changed?

This incentive was introduced to benefit both the owners of residential and commercial projects alike, but that will change in the next few years. The policy was originally passed in 2005, permitting a 30% credit, but the program was adjusted over time.

Originally, Federal Tax Credit was aimed to gradually phase out by now.  Every year, new policies have allowed this tax credit to remain here. In 2019 it was scheduled that it will drop from 26% to 22% in 2021, however, the government has decided to keep the percentage at 26% for two more years. 

New solar energy system owners can receive a 26% credit for a system installed in 2021 & 2022. The credit percentage will lower to only 22% in 2023. In 2024, the percentage will be reduced even further to just 10% and will only apply to commercial systems.

How Does This Impact New Solar Projects?

Homeowners that are currently considering solar installation will need to make the switch by the end of 2022 to qualify for the tax credit. Starting in 2024, residential systems will not be able to take advantage of this tax incentive.

Commercial property owners should also act sooner rather than later so that they can save more; projects installed this year can save more than twice the amount that they’d save in 2022.

Federal ITC Progression





2024 (and after)

ITC Percentage





Project Type

Residential & Commercial

Residential & Commercial

Residential & Commercial


Who is eligible for Federal Tax Credit?

In order to qualify for Solar Federal Tax Credit, you need to meet all of these requirements.

  • Solar energy system installed between 2006 to 2023 year-end.
  • Solar PV must be installed at your primary or secondary location in the United States.
  • You must own the property, as renters are excluded.
  • You must own your solar panels, as some leasing excludes the Federal tax rebate.
  • The solar energy system is new or being used for the first time. Only applicable on the original installation.
  • Your income tax liability should be greater than or equal to the tax credit

If you haven’t installed a solar energy system yet and are looking forward to saving electricity, don’t stall now. The Federal tax incentive is going to decrease in years to come. It's a good idea to get the solar system installed today and start saving.

YellowLite is a turn-key solar installer offering premium solar products. Contact our solar experts to learn more about Federal Tax Credit and how you can save big on your new installation.

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