Grappling with climate change and the long-term challenges of being dependent on fossil fuels, the U.S. government took action towards a brighter future by investing in solar technology and launching the Investment Tax Credit (ITC), one of the key contributing factors to the solar boom. If you are considering installing a solar system for your residential or commercial property, the following information can help you find out if you qualify for additional tax savings under this program.
What Is the Investment Tax Credit (ITC)?
The Investment Tax Credit (ITC) is a federal tax credit—currently 30 percent—claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property. The Section 25D residential ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes. In the case of the Section 48 credit, the business that installs, develops, and/or finances the project claims the credit, providing a one-stop-shop for the homeowner.
How Long Is the ITC Available?
The residential and commercial solar ITCs have helped annual solar installation grow by more than 1,600 percent since they were implemented in 2006, a compound annual growth rate of 76 percent. Until 2019, the tax credit will remain at 30 percent of the system cost. After that, things begin to change and the window for the highest savings starts to close. By 2022, the amount you can deduct is scheduled to fall to 10 percent for commercial and 0 percent for residential.
How Do I Qualify for the ITC?
As long as you own your solar energy system, you are eligible for the 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. If you sign a lease or PPA with a solar installer, however, remember that you are not the owner of the system and thus you cannot receive the tax credit.
When Should I Use the ITC?
If you are a homeowner who has felt the heat of high summer energy bills, you may be looking to cash in as soon as possible. The good news is there is no reason to wait—the utility companies hike prices every year with no end in sight, but the solar tax credits are due to dry up. With temperatures and energy rates rising to record-breaking highs, your bank account is in the crosshairs. If you qualify, get the ITC now while it is available now; in a couple short years, you will have missed the opportunity.