The Future of the Solar Tax Credit Going Into 2021
Big news hit the solar industry in late December of 2020, closing out the year with a bang: the residential solar tax credit initially set to expire after 2021, has been extended through 2023. This means that homeowners who invest in solar in 2021 or 2022 will be eligible for a 26% tax credit, and those who invest in solar in 2023 will be eligible for a 22% tax credit. The solar tax credit was initially created in 2006, with the hope that it would make solar more affordable. Since then, the U.S Solar Industry has grown exponentially, with some websites reporting growth of over 10,000%.
The continuation of the solar investment tax credit (ITC) has been an ongoing battle that has had many supporters behind it, but even with a multitude of bills proposed to extend its life, nothing has stuck… until now. As part of the new federal spending package amounting to $1.4 trillion, the residential tax credit that was previously set to decrease in 2021 and halted by the year 2022, will live on for a few more years.
When will it end? Although the residential tax credit has gained a few more years on its lifespan, it is set to end after 2023, while the commercial tax credit will drop to a permanent 10%. That is unless Congress renews it. For a while, it seemed unlikely that the residential tax credit would last much longer. However, under the new Biden-Harris administration, there are hopes that the areas of clean energy and climate change will gain a much stronger focus. Even so, there are still actions we can take towards keeping the ITC in place. The SEIA suggests calling upon Congress and speaking to your representative to push for making renewable energy a priority. Vote. Spread the word. Any step taken, no matter how small, is one step closer to a more reliable and sustainable future.
How the Solar Tax Credit Works
One common misconception of the solar investment tax credit (ITC), is that it is a discount on the cost of your solar system. Instead, the ITC is a credit (of 26% of the cost of installing a solar energy system) that you can put towards your income tax payment. Even better, the ITC applies to both residential and commercial installations, and there is no cap on its value. For example, if the cost of your solar PV system is $20,000, and the tax credit is set at 26%, then you will be credited $5,200 towards your income taxes, reducing the net cost of your system from $20,000 to $14,800; a significant amount of savings if you ask us. $20,000 System X 26% = $5,200 Credit
And no need to worry if your tax liability doesn’t amount to the credit you’ve earned, because what you don’t use for one year will simply be transferred as a credit for the following year’s taxes.
With the cost of solar decreasing and the recent extension of the ITC, there has never been a better time than now to invest in solar. Don’t wait – Contact us today to find out how we can help you take advantage of this amazing opportunity, and improve the world one solar panel at a time.
** This content is for informational purposes only. Please consult your tax advisor for information regarding your specific situation. **