There are many local and state incentives to encourage the adoption of solar energy. But there’s one that outshines them all: The Solar Investment Tax Credit. Also known as the ITC.
This federal incentive in a way kick-started the solar energy boom in America that persists today. This is one of the single most powerful tools we’ve had in promoting the adoption of solar. Since the passage of the ITC in 2005 there’s been a 10,000% increase in the amount of solar in the United States. Each year the U.S. sets a new record for solar panels installed with now more than 23 million homes powered by the sun and over 230,000 Americans employed in the solar energy space. The ITC has been a game changer.
The ITC was originally signed into law by the Bush Administration in 2005 and was scheduled to last for only 2 years. Its immediate popularity and economic impact impelled Congress to extend it multiple times. Most recently the ITC was scheduled to expire for residential systems in 2023 but with the passage of the Inflation Reduction Act it’s not only been increased back to the original 30%, but has also been extended until 2033.
Here are a few key points to help understand how the ITC works and why it’s been so effective:
- The ITC is a tax credit equal to 30% of the cost of a solar system purchase, which allows both homeowners and businesses to receive a credit back on their federal income taxes. To put this in real dollar terms, the average solar system will cost in the range of $25,000 to $30,000, meaning you’d be eligible for $7,500 to $9,000 back from the government.
- The credit goes to the owner of the solar system meaning that customers who get solar through a lease or PPA won’t receive the credit.
- The 30% credit will last until 2033, then dropping to 26%.
- The credit rolls over as long as the ITC is in effect – meaning that those without a high enough tax liability to use it all in one year can still collect the full 30% credit over time.
- The ITC will cover 30% of a full purchase price, even when that includes additional products and services such as battery storage, an electrical panel upgrade or even a partial roof replacement – as long as those additional items are related to the installation of the system and are part of the purchase price.
Some local, state and utility incentives exist in addition to the ITC. And some of them can impact the amount of ITC you’ll be eligible for. Here are a few of the ways in which additional incentives can combine with and impact the ITC:
- SREC (Solar Renewable Energy Credits): these are a nuanced incentive structure available in a handful of states (more here), but without getting into the weeds the key point to understand is that this incentive will generally be treated as income that you receive over time, it will likely be considered taxable income, but, it will not impact the amount of ITC you’re eligible for.
- State, County or Municipal Tax Credits: As a general rule, tax credits that reduce your liability – either through state income tax credits or property tax credits – but don’t directly affect your solar purchase price, will not impact your ITC.
- Utility Rebates: In most cases rebates from your utility will not be taxed as income. Instead, these rebates will reduce the cost of your solar system and your ITC will be calculated on the post-rebate amount.
With the U.S. setting increasingly aggressive clean energy goals its understandable that the ITC was extended. As the single most lucrative incentive it has contributed significantly to the achievements in the solar industry to date. The amount of solar has grown by 33% annually for the last decade (nearly 800,000 Americans adopted solar last year alone, as well as many of our largest businesses and institutions) and despite this solar still powers less than 5% of the utility grid. With the passage of the Inflation Reduction Act and the resulting increase and extension of the ITC we can look forward to continued growth of solar in the U.S. and the resulting benefits to our health and our economy.
If you’re interested in learning if your home will qualify for a solar system, and how you can take advantage of the Investment Tax Credit, click here (link to the lead form). A Clean Power Club Advisor is ready to help you take the first steps today.