Federal Tax Credit

• 2016 – 2019: The Federal tax credit remains at 30 percent of the cost of the system.

Congress extends solar tax credit – everything you need to know about the Federal Solar Tax Credt (ITC)

Federal Solar tax credit Extension

Congress has voted to extend the solar tax credit for homeowners through 2021.

Homeowners, solar installation companies, and solar industry advocates alike were given a big Christmas gift in 2015 when Congress approved the 2016 federal spending bill and extended the federal solar panel tax credit. The December 18 bill contained a five (5) year federal solar tax credit extension, which makes solar energy more affordable for all Americans.

What is the solar tax credit?

The federal solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential, business and commercial solar energy systems, and there is no cap on its value. Thanks to the ITC, the average installation cost of solar energy systems saved investors over $5,000 on the cost of going with solar energy systems in 2017. The cost of solar panels is dropping across the nation.

What does the federal solar tax credit extension mean for the solar energy industry?

The federal solar energy tax credit (ITC) was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. A series of extensions pushed the expiration date back to the end of 2016, but experts believed that an additional five-year extension would bring the solar energy industry to its complete maturity. Thanks to the spending bill that Congress passed in late December 2015, the tax credit is now available to homeowners in some form through 2021.

Here are the specifics:

• 2016 – 2019: The Federal tax credit remains at 30 percent of the cost of the system. This means that in 2017, you can still get a major discounted price for your solar energy panel system.
• 2020: Owners of new residential,business and commercial solar energy systems can deduct 26 percent of the cost of the system from their taxes.
• 2021: Owners of new residential, business and commercial solar energy systems can deduct 22 percent of the cost of the system from their taxes.
• 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal tax credit for residential solar energy systems.
Additionally, in previous years, owners of new solar energy systems could not claim the tax credit unless their system was operational. Now, the legislation allows them to claim it as soon as the construction of the system begins, as long as it is operational by December 31, 2023.

Do I qualify for the solar panel tax credit?

As long as you own your solar energy system, you are eligible for the federal solar tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. However, remember that if you sign a lease or PPA with a solar installation company, you are not the owner of the system, and thus you cannot receive the tax credit.

How do I claim the solar tax credit?

You claim the solar tax credit when you file your yearly federal tax return. Remember to let your CPA or accountant know you have gone solar energy in the past year.