There was huge news today in the US solar industry:
Congress passed legislation that extends the 26% Federal Investment Tax Credit (ITC) for solar through the end of 2022.
As part of the very welcome stimulus bill to help Americans weather the COVID-19 crisis, the federal solar tax credit will remain at 26% for residential installations in 2021 and 2022. In 2023, the tax credit will drop to 22%. This is an excellent development for the solar industry, as the federal tax credit has been one of the biggest drivers of solar growth in the United States for over a decade.
If you are thinking about solar for your home or business, 26% of the project costs will be deducted from your federal tax burden. Instead of a straight rebate for solar, it is a dollar-for-dollar reduction in the amount of federal taxes you owe for the year. Since most people pay some amount of federal taxes, this tax credit incentivizes buyers in the same way as a rebate.
If you happen to owe less in federal taxes than you are qualified to receive through the 26% solar tax credit, the leftover amount will be applied toward the following year’s taxes. Let’s say your solar project costs $10,000 in 2021. You are eligible to receive $2,600 in a tax credit to be put toward your 2021 federal taxes. If you only owe $2,000 in federal taxes in 2021, the remaining $600 of solar tax credit will be deferred until the following year; you would then put $600 toward your 2022 federal taxes.
What solar project costs are covered under the federal tax credit?
- All solar equipment and installation hardware
- Battery systems that charge from solar power
- Any necessary electrical panel upgrades
- Permitting fees
- All engineering design and planning costs
- Installation labor costs
- Certain costs related to roof improvements/repairs in order to support solar panels
With the extension of the solar federal ITC, there has never been a better time to go solar. If you would like to learn more about how to save money on your energy bills and reduce your carbon footprint with solar power, please reach out to us!