SOLAR FEDERAL TAX CREDIT
Solar Investment Tax Credit Overview The Investment Tax Credit (ITC) is an incentive from the federal government. It was put in place to encourage uptake of solar energy and other renewable energy systems in 2006. It has been tremendously successful in this goal: the number of solar installations in the US has increased 1,600% since the ITC was introduced. Many Sustainable Solutions customers quickly understand the potential benefits of the ITC, but have questions when it comes to the particulars of how it operates. Frequently, we field questions from customers regarding whether or not they can claim the ITC at all, and when and how it can be applied to their tax bills. This handout discusses the ITC in general and addresses some concerns that you may have about how and when the credit can be applied. Please note: Sustainable Solutions’ goal in providing this handout is to provide general information about the ITC. However, the US tax code is complicated, and what we have written should not take the place of advice from a qualified tax professional. Consult your tax advisor before deciding what is best for you, including whether or not the ITC could result in a lowered tax liability for you specifically. No one at Sustainable Solutions, including your sales representative, is qualified to address your particular tax situation and/or to offer you any tax advice. About the Investment Tax Credit for solar: How it works The key thing to remember about the ITC is this: To benefit from it, you must first have sufficient tax liability. That is, you must owe at least as much money in taxes as the amount of your credit. Under the ITC, you will be eligible to receive a 26% credit if you have a solar electricity system in service (i.e. fully installed and connected to the grid) before December 31st 2020. After that point – unless Congress intervenes by extending the duration or otherwise changing the requirements – the available ITC will be reduced annually until it hits 0% for residential solar systems by the end of 2021. Currently, the ITC allows you to subtract up to 26% of what you paid for your qualifying solar system from your federal tax bill, thus effectively reducing the overall amount that you pay to the IRS. For example, if the net cost of your system (i.e. the cost after you deduct cash rebates available through your state government or local utility) was $10,000, you would likely qualify to claim $2,600 under the ITC on your federal tax bill. Thus, the tax credit is a dollar-for-dollar reduction in the amount of income taxes that you owe to the federal government for the tax year in which you purchased your system. It is not a tax rebate. The ITC does not work like an up-front ‘discount’; it is not applied to the cost of your system at the time of purchase. Instead, you pay for the system up-front (or with a solar loan) and then it is your responsibility to claim the ITC when you file your taxes. This means that you need to know ahead of time whether your tax liability will be large enough for you to take advantage of the ITC in the first place.
