What Is the Federal Solar Investment Tax Credit?

Thanks to increased competition and economies of scale, solar photovoltaic (PV) technology has never been more affordable than it is today. In fact, panel prices have fallen by more than 70% since 2010. And experts predict that the cost of going solar will only continue to drop in the coming years.

Even still, almost no one pays full price for a new PV system.

This is in large part thanks to solar incentives like the Investment Tax Credit (ITC).

How Does the Solar Investment Tax Credit Work?

The Solar Investment Tax Credit is a federal subsidy that allows you to claim a one-time 30% tax credit when you install solar panels. In effect, this incentive makes your PV system 30% cheaper than it would otherwise be.

Here’s how it works:

  • Imagine you install a $10,000 solar installation (parts and labor). This translates to a $3,000 credit (or 30% of the total cost).
  • If you’ve earned income and have the tax appetite, the solar tax credit would equate to $3,000 pod by Uncle Sam
  • Like that, an installation that originally cost $10,000 is now only $7,000. And you can pocket the difference for yourself.

With savings like these, it’s easy to see why this generous incentive is credited with growing the solar industry by more than 1,600% since the program was first introduced in 2006.

Who Is Eligible for the Federal Solar Tax Credit?

To qualify for the Solar Investment Tax Credit, you must own the PV system being installed. You must also be the property owner of whatever residential or commercial building is receiving the panels.

Note, however, that the property in question doesn’t have to be your primary residence. This means vacation homes, stationary RVs, and rental properties (that you own) are all eligible.

In addition, there are no maximum limits under the Solar ITC:

  • A $10,000 installation translates to a $3,000 credit.
  • A $50,000 PV system yields a tax credit of $15,000.

And if the credit exceeds your tax liability for that year, you can carry it forward to the next tax season.

When to Apply for the Solar Investment Tax Credit

Like most incentives, this tax credit is regressive – meaning the payouts and benefits diminish over time.

Under the current schedule:

  • The 30% rate lasts until the end of 2019.
  • Thereafter, it drops to 26% through 2020.
  • Then it moves to 22% until the end of 2021.

2022 onwards, the tax credit expires forever for homeowners. And commercial solar customers will only be able to claim a 10% credit.

This is why delaying your solar investment is a mistake. Early adopters receive the lion’s share of rewards, while latecomers receive fewer (if any) benefits.

In other words, waiting to go solar only increases the likelihood of paying full price for a PV system once you decide to move forward.

The Solar Investment Tax Credit is one of the most generous incentives in the industry. When used correctly, it can reduce the cost of your solar installation by up to 30%.

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