The federal solar tax credit allows you to deduct a percent of the cost of installing a solar energy system from your federal taxes.
Thanks to the stimulus bill that congress passed in early 2021, the tax credit has been extended at 26% for two more years! However, the rate will go down in 2023 and disappear altogether for the residential market in 2024.
In 2005 the Energy Policy Act was enacted and ITC (also known as the federal solar investment tax credit) was created. Using ITC allows for the installation costs of solar energy systems (both commercial and residential) up to 26% to be deducted. Therefore, anyone who owns their solar energy system is able to claim the one-time solar investment tax credit when they file their federal tax return. That percent deduction comes back to you as cash-back meaning you get to do whatever you want with it, such as solar financing or adding to your savings. According to Energysage, ITC has helped the average solar customer save, “nearly $9,000 on the cost of going solar.” Another great reason to invest in solar.
The first version of ITC established in 2005 was to expire at the end of 2007. This did not happen because the solar investment tax credit was and continues to be very popular, and this led to its expiration date being extended multiple times. JD Supra states that the new COVID-19 relief legislation, “ …provides a two-year extension of certain time-based requirements or amount limitations pertaining to the ITC for solar and certain other qualifying renewable energy production technologies…” Thus, the 2020 COVID Relief Bill continues the 26% federal solar investment tax credit deduction level until the end of 2022, decreasing to 22% in 2023, and to 10% in 2024.
