Not only is solar energy great for the environment, but it can be great for your wallet too thanks to the Solar Investment Tax Credit (ITC). Below is more information on the ITC from SEIA.org:
What is the Solar Investment Tax Credit?
The ITC is currently a 30 percent federal tax credit claimed against the tax liability of residential and commercial and utility investors in solar energy property. The 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 commercial and utility credit, the business that installs, develops and/or finances the project claims the credit.
How does the Solar Investment Tax Credit work?
A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 30 percent of the basis that is invested in eligible property which have commence construction through 2019.
The ITC then steps down to 26 percent in 2020 and 22 percent in 2021. After 2023, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent. Commercial and utility projects which have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023. The Treasury and IRS are currently drafting guidance which will inform solar developers of which percentage of ITC they will qualify for depending on when they started their project.
History of the Solar Investment Tax Credit
The Energy Policy Act of 2005 created a 30 percent ITC for residential and commercial solar energy systems that applied to projects placed in service between January 1, 2006 and December 31, 2007. In 2006, the Tax Relief and Health Care Act extended these credits for one additional year through December 31, 2008. In 2008, the Emergency Economic Stabilization Act included an eight-year extension of the residential and commercial ITC, eliminated the monetary cap for residential solar electric installations and permitted utilities and companies paying the alternative minimum tax (AMT) to qualify for the credit.
In 2015, the Omnibus Appropriations Act included a multi-year extension of the residential and commercial ITC described above and changed the previous “placed-in-service” standard for qualification for the credit to a “commence construction” standard for projects completed by the end of 2023. In addition to the commence construction guidance underway at the Treasury and IRS referenced above, a broader regulatory project is also underway defining what property qualifies as solar energy property as The recent ITC extension is expected to nearly quadruple solar deployment by the end of 2020 while doubling US solar employment and spurring $140 billion in economic activity defined under Section 48. Examples of property under consideration are energy storage, carports, solar canopies and roofing.
What Will Be the Impact of the Recent ITC Extension?
The ITC has proven to be one of the most important federal policy mechanisms to incentivize the deployment of both rooftop and utility-scale solar energy in the United States. As a result of the multi-year extension of the credit enacted in late-2015, solar prices are expected to continue to fall while installation rates and technological efficiencies will continue to climb. The ITC is nothing short of a tax policy success story and we expect this fact to continue to play out over the next several years.
Specifically, we expect the roughly 27 gigawatts of solar energy cumulatively installed in the US at the end of 2015 to reach nearly 100 GW by the end of 2020. Moreover, the roughly 210,000 Americans currently employed in solar is expected to double to 420,000 in the same time period - all this while spurring roughly $140 billion in economic activity. The continued success of the ITC demonstrates that stable, long-term federal tax incentives can drive economic growth while reducing prices and creating jobs in one of America’s fastest growing industries.