Solar ITC 101: What is the Solar Investment Tax Credit?
The solar Investment Tax Credit (ITC) is one of the most important federal policy mechanisms to support the growth of solar energy in the United States. Since the ITC was enacted in 2006, the U.S. solar industry has grown by more than 10,000% – creating hundreds of thousands of jobs and investing billions of dollars in the U.S. economy in the process. In 2020, SEIA successfully advocated for a two-year delay of the credit stepdown, which has provided critical stability for businesses enduring the economic effects of the COVID-19 crisis.
How Does the Solar Investment Tax Credit Work?
The ITC is currently a 26 percent federal tax credit claimed against the tax liability of residential (under Section 25D) and commercial and utility (under Section 48) investors in solar energy property. The Section 25D residential ITC allows the homeowner to apply the credit to their 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 Section 48 credit, the business that installs, develops, and/or finances the project claims the credit.
A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company 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 currently equal to 26 percent of the basis that is invested in eligible solar property which has begun construction through 2022. The ITC then steps down according to the following schedule:
