Solar ITC Step Down Explained
Solar PV system owners will have until the end of 2020 to qualify for the 26% Solar Investment Tax Credit (ITC) before it steps down again.
The ITC has proven to be the most influential and important Federal policy to incentivize the solar industry’s growth since its introduction. Now that the tax credit is going to step down it is going to shake up the industry a bit. Despite the inevitable step down, the solar industry is positioned to continue its growth trajectory.
The Solar ITC came to fruition in 2005 under the Energy Policy Act of 2005 creating a 30% ITC for residential and commercial solar energy systems. The original bill contained various tax incentives that supported energy efficient and sustainable technologies. The Solar investment tax credit became part of the package, initiating the growth of solar in the United States. The ITC was originally set to last two years but was extended in three separate bills.
- 2005: Energy Policy Act of 2005 starts 30% investment tax credit for residential and commercial solar
- 2006: Tax Relief and Health Care Act of 2006 extends tax credits for an additional year
- 2008: Emergency Economic Stabilization Act included an eight-year extension of the residential and commercial ITC
- 2015: Omnibus Appropriations Act included a multi-year extension of the residential and commercial ITC and changed the previous “placed-in-service” standard qualification for the credit to a “commence construction” standard for projects completed by the end of 2023. The step down to 10% for commercial solar only takes effect in 2023 and beyond.
Overview of Step Down
Originally the ITC rewarded new solar PV system owners 30% of a project’s install cost if begun in 2019. The ITC reduced to 26% in 2020, 22% in 2021, and down to 10% in 2022 where is will remain only for utility and commercial projects. In 2022, homeowners lose the ability to collect a solar tax credit. This chart below visually explains the step down:
The Solar ITC since its originality has seen a few extensions in its life time. The solar industry itself is in a much stronger position than before when the ITC faced elimination back in 2008. In the past years the prices for solar equipment has plummeted allowing for customers in every sector to be able to afford PV systems. At the same time state, city, and local municipalities have set high renewable energy targets. In addition, lucrative financial structures are in place for corporations to take advantage of in order to fill their sustainability initiatives. All in all, solar is here to stay with or without the ITC. Our team comprised of solar experts capable of handling any sized project from an off-grid cabin to a over-sized commercial project and beyond. Contact one of our representatives at (205) 202-2208.