In honor of President’s Day Weekend, we offer a brief history of the federal solar tax credit:
The Investment Tax Credit (ITC) was originally established by the Energy Policy Act of 2005 under the Bush Administration but was scheduled to sunset at the end of 2007. The original legislation provided a 30% credit on the cost of any system but was capped at $2,000 which hampered the growth of renewable energy when compared to the immense tax incentives for fossil fuel development (e.g. exploration & drilling). After taking office in 2008, the Obama administration removed the $2,000 cap to further incentivize the adoption of renewable energy.
Thanks to the tax credit’s popularity, and its success in supporting the country’s transition to renewable energy, Congress has extended its expiration date multiple times, including most recently in December 2020 to extend the ITC at 26 percent for two additional years. Now, the solar investment tax credit is available to homeowners in some form through 2022.
The job creation has been staggering, outpacing most other sectors of the U.S. economy. There were around 20,000 Americans working in solar in 2006 and now there are nearly a quarter million. California leads the nation in solar jobs with around 75,000.
How the solar tax credit works
If you own your solar system, you are eligible for the tax credit which is 26% of the total system cost. For example, if your system costs $20,000, you can claim a $5,200 credit. Unfortunately, leases and PPAs are not eligible for the ITC so you’ll want to make sure you know what you’re signing up for. Check with your CPA or tax professional about how to claim the ITC. Another important feature is that there is no income limit on the ITC program, so all tax brackets may be eligible. You are also able to carry the credit forward if you cannot use it all in one year.
