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The Federal Solar Investment Tax Credit: What You Need to Know

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Sullivan Solar Power

One of the most significant pieces of legislation that has helped advance the deployment of both residential and commercial solar across the United States is the Solar Investment Tax Credit (ITC). Established by Congress in 2006, the ITC grants a 30 percent federal tax credit for the installation of a solar power system on residential and commercial properties.

A tax credit is a dollar-for-dollar reduction of the income tax you owe. For example, if you owe $1,000 in federal taxes but are eligible for a $1,000 tax credit, your net liability drops to zero. Tax credits are generally designed to encourage or reward certain types of behavior that are considered beneficial to the economy, the environment or to further any other purpose the government deems important. When you purchase a solar power system, you can claim a tax credit equal to the percentage of the cost of the project outlined by the program. Up until December 31, 2019, this is 30 percent.

Since the tax credit was implemented in 2006, two years after the founding of Sullivan Solar Power, the solar industry has grown by more than 10,000 percent, with an average growth rate of 52 percent each year. The growth of the solar industry in the United States means a win for the local and national economy. It provides a new industry to supply local jobs and greater savings for consumers on electricity, which can be redistributed back into the economy. In addition to positioning the United States as a leader in global technology, investing in solar power grants political independence from foreign fossil-fuel producing countries and perhaps most importantly, promotes the development of an energy source that reduces our carbon footprint and does not contribute to climate change while powering our needs.

The solar ITC was set to expire in 2016, however, Congress passed the Omnibus Appropriations Bill which garnered bipartisan support in part because in addition to extending the tax credit, it lifted a ban on fossil fuel exports. The legislation extended the tax credit in full through the year 2019, with a step-down clause to commence from 2020–2022.

The step-down of the solar ITC is as follows:

  • Year 2020: 26% for residential and commercial
  • Year 2021: 22% for residential and commercial
  • Year 2022: 10% commercial only
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