Congress extends solar tax credit – everything you need to know about the federal ITC

federal solar tax credit itc extension

Congress has voted to extend the solar tax credit for homeowners through 2021.

Homeowners, solar companies, and industry advocates alike were given a big Christmas gift in 2015 when Congress approved the 2016 federal spending bill and extended the solar panel tax credit. The December 18 bill contained a 5-year solar tax credit extension, which makes solar more affordable for all Americans. Wondering how this impacts you? EnergySage has the answers.


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What is the solar tax credit?

The federal solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value. Thanks to the ITC, the average EnergySage Solar Marketplace shopper saved nearly $9,000 on the cost of going solar in 2015.

What does the federal solar tax credit extension mean for the solar industry?

The federal ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. A series of extensions pushed the expiration date back to the end of 2016, but experts believed that an additional five-year extension would bring the solar industry to its full maturity. Thanks to the spending bill that Congress passed in late December 2015, the tax credit is now available to homeowners in some form through 2021. Here are the specifics:

  • 2016 – 2019: The tax credit remains at 30 percent of the cost of the system. This means that in 2017, you can still get a major discounted price for your solar panel system.
  • 2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.
  • 2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
  • 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.





solar tax credit itc graphic




Additionally, in previous years, owners of new solar energy systems could not claim the tax credit unless their system was operational. Now, the legislation allows them to claim it as soon as the construction of the system begins, as long as it is operational by December 31, 2023.

Do I qualify for the solar panel tax credit?

As long as you own your solar energy system, you are eligible for the solar tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. However, remember that if you sign a lease or PPA with a solar installer, you are not the owner of the system, and thus you cannot receive the tax credit.

How do I claim the solar tax credit?

You claim the solar tax credit when you file your yearly federal tax return. Remember to let your accountant know you’ve gone solar in the past year, or if you file your own taxes, use EnergySage’s step-by-step guide on how to claim the solar ITC. 

More resources on the extension of the federal ITC

20 thoughts on “Congress extends solar tax credit – everything you need to know about the federal ITC

  1. Pingback: Be careful when it comes to that rooftop solar tax credit - The San Diego Union-Tribune - Richardson Roofing, Inc.

  2. Andy

    Clarifying question – regarding the sentence “Now, the legislation allows them to claim it as soon as the construction of the system begins, as long as it is operational by December 31, 2023.”
    Your writing seems to imply that this applies to residential scale solar projects, but my understanding is that this is what’s known as the “commence construction clause”, and applies only to larger scale commercial solar projects. As I understand it, the residential tax credit is still qualified for when the project is “placed in service”, which would likely mean the date it sees utility approval to operate. Is that right, or is there something I am missing?

    Reply
  3. Linda Poppenheimer

    Sara,

    Thanks for this piece about the solar tax credit extension. I especially appreciate you providing a link to the actual bill and letting readers know to start reading at Section 303, beginning on pg. 2005.

    Reply
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    1. Joe A

      There is no reason under the sun for Trump to repeal this tax credit. It rewards those who spend money putting others to work.

      Reply
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  8. Michael Amico

    Hello, can you please clarify the comment “legislation allows them to claim it as soon as the construction of the system begins, as long as it is operational by December 31, 2023.’ Where is that stated?

    I searched for this and only found Section 304 (below) which indicates the system must be placed in service.

    Section 304 – Extension and phaseout of credits with respect to qualified solar electric property and qualified solar water heating property.

    Extends a tax credit for qualified solar electric property and qualified solar water heating property for five years to December 31, 2021. Includes a phaseout that makes the applicable percentage of the tax credit: 30 percent for property placed in service after December 31, 2016, and before January 1, 2020; 26 percent for property placed in service after December 31, 2019, and before January 1, 2021; 22 percent for property placed in service after December 31, 2020, and before January 1, 2022.

    Reply
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  16. Emily

    Will this tax credit extend through 2017? Can Trump/Congress eliminate this program? And if so, how quickly could the program be eliminated.

    Also, if construction of my solar system begins before April 2017, do I have to file it on my 2016 taxes, or can I file it on my taxes next year?

    Reply
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