Solar Investment Tax Credit (ITC)

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Solar Investment Tax Credit (ITC)

The Federal Investment Tax Credit (ITC), also known as the Solar Investment Tax Credit, is a tax credit that homeowners are eligible for when they install a solar system.  If a homeowner installs their new solar system in 2019, they can claim a 30% tax credit on their 2019 tax return.  For example, if your total solar system cost is $10,000 (including equipment, labor, permits, etc…) then you can claim a $3,000 tax credit in 2019.  While you still need to pay your installer $10,000, you will owe the federal government $3,000 less in taxes for 2019.

Does Everyone Qualify?

If you did not purchase your solar system outright, perhaps because you chose to go solar with a lease or a power purchase agreement (PPA), then you will not be eligible for the tax credit. Typically, in a lease, or a PPA, the solar system is owned by someone other than the homeowner and that organization will get the benefit of claiming the tax credit. As compensation, the homeowner often receives a discounted price.

Being a tax credit, people who owe no federal taxes unfortunately are not able to make use of the tax credit benefit. In that case a PPA may be a better option. Or, if you can generate taxable income in the year you go solar (perhaps by selling some appreciated assets or converting a Traditional IRA to a Roth IRA) then you might make use of the tax credit.

As with all tax matters, please consult your tax advisor!

Keep in mind that if you don’t have enough tax liability to use all of the tax credit in one year you can roll it over to future years for as long as the tax credit is in effect.

Is the ITC Phasing Out?

As of January 1, 2020, the tax credit will be reduced to 26%, then on January 1, 2021 it is reduced to 22%. Any residential projects started on January 1, 2022 or later will not receive a tax credit (commercial projects still receive 10%).

A residential solar installation must be placed into service by the end of 2019 to receive the 30% tax credit. This typically means that you need Permission to Operation (PTO) from the utility before the end of the year. As on all tax matters, please consult your tax advisor.

Don’t wait too long to get your project on your installer’s calendar – their workload is likely to increase as these deadlines approach!

Click here for more details on the Solar ITC.

Will the ITC Get Extended?

While it is true that the ITC has been extended several times in the past, whether it will be extended again is anyone’s guess.

Has the ITC been effective?

According to the Solar Energy Industries Association, since the ITC was enacted, solar deployment has had a 59% compound annual growth rate. Over 60 GW of solar PV has been installed in the US, enough to power 11 million homes, and over 250,000 people now work in the solar industry. This boost in affordability from the ITC as spurred interest in the technology which in turn has made a market that is competitive and innovative.

As with all tax matters, please consult your tax advisor!

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