The Federal Solar Investment Tax Credit (ITC) and You

by Steven Gambla, Eagle Solar & Light PV Associate

The Federal Solar Investment Tax Credit (ITC) is an alluring incentive given to the owners of photovoltaic systems in the United States. If you are a tax-paying citizen or business entity in 2020, 26% of the cost of your new system can be credited back to you on your federal tax return. The origin of the credit was a result of the Energy Policy Act of 2005. The goal of the credit is to incentivize clean, renewable energy in the United States as a way to combat pollution and global climate change. It has been a successful incentive, evident by the amount of installed photovoltaic systems increasing from 79 Megawatts in 2005 to 14,762 Megawatts in 2016.

Between 2006 and 2019, the ITC was at a strong 30%. At the start of 2020, it dropped by 4%. Unfortunately, it is set to drop even more unless Congress realizes that they are making a mistake by letting it die off. By 2021, the credit will be 22% and that will be the last year residential customers can utilize the incentive. Starting in 2022, only commercial customers can utilize a 10% credit on their system.

So let's do some quick math to understand the ITC better. Jim has decided to get an off-the-grid photovoltaic system on his house in 2020. The batteries in his system will only be charged by solar energy, allowing them to be included in the credit calculation. A contractor has quoted him $20,000.00 to design and build the system. Let's also say that Jim owes the Federal government $5,500.00 in taxes for 2020. If he decides to go through with the project, he would only owe $300.00 in taxes ($5,500.00 minus 26% of $20,000.00).

As you can see, the ITC has the potential to drastically reduce the payback period for a photovoltaic system by saving the owner money when tax season comes around. Although there are conflicting opinions as to whether this is the right way to incentivize solar energy, it does seem to be working. So what is the point that I am trying to make? Go solar this year before time runs out! It is unlikely that Congress will be extending the ITC anytime soon. If you went in to the future and realized that a company's stock was selling for $500.00 per share in 2025 and only $5.00 per share in 2020, you would probably go back to 2020 and buy all of the stock that you could fit in your budget. This is a similar concept with a solar investment! The incentives and electricity bill savings you lock in now will be worth a lot more in the future when the incentives are non-existent and electricity prices skyrocket! So contact Eagle Solar and Light today if you are interested in getting a photovoltaic system and we will lock you in to the 26% ITC before time runs out.

 

 

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