A guide to the Solar Investment Tax Credit
The Federal Solar ITC is the most significant solar incentive in the United States. This guide breaks it down for you.
(Disclaimer: We are solar nerds, not tax nerds. Please consult a tax professional for authoritative advice on this issue.)
What is the ITC?
The Solar Investment Tax Credit is a rebate on your federal taxes for the installation of energy-related improvements to your home, including solar electric, solar hot water, small wind, and geothermal heat pumps.
The credit is currently calculated as 30% of your total system costs, but that amount will step down over time:
|Date installation completed||Rebate|
|up to 12/31/2019||30%|
|calendar year 2020 and 2021||26%|
|calendar year 2022||22%|
|after 2022||0% for residential solar, 10% for businesses|
What is the 30% calculated on?
It is 30% of the total system price, including hardware and labor costs.
How does the credit work?
You get the credit as a reduction of your tax bill. It is not paid out to you directly in full. For example, if your ITC credit is $5,000, but your tax bill is only $4,000, you get a maximum benefit of $4,000. However, you can carry forward any unused credits to the next year. Please consult with a tax professional for more details.
Can the credit be taken on a second home?
The IRS specifies that the credit is for your main home. They define main home as:
Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation, won’t change your main home.
Can I take advantage of the ITC in addition to state or local credits?
In all cases that we are aware of - yes. Taking the ITC does not prevent you from also receiving rebates offered by your state, municipality, or utility.
Which are the relevant IRS forms?
Use Form 5696 for residential (home) solar.
Use Form 3468 for commercial solar.
It’s too bad that the credit steps down over time. Will it be renewed?
A renewal would require an act of Congress. It has been renewed before, most recently by the Bipartisan Budget Act of 2018. There is definitely no certainty that they would do it again. Best to take advantage of it in the available timeframe, if you can.
Where can I learn more?
Follow the link above for the relevant IRS form and read the associated instructions. It’s worthwhile reading because in addition to solar electric, many other renewable energy technologies are covered, as well as energy efficiency improvements such as insulation and windows.