Solar Tax Credit Extended Through 2022

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Just as the time for the end of the solar tax credit was drawing near, Congress passed its relief package at the end of 2020, with some heralding it the Energy Act of 2020. On Sunday, December 27, 2020, President Trump signed the omnibus spending and COVID relief bill into law. This bill provided necessary financial relief for businesses and individuals impacted by COVID, as well as kept the government moving through the pandemic. 

As part of the spending bill, known as HR 133, the government extended the federal solar investment tax credit (ITC) for a few years. Here’s what you should know about the solar tax credit extension, and how it may affect your solar installation.

This substantial environmental win gave provisions for reducing hydrofluorocarbon (HFC) emissions, funding for renewable energy research and development, and extensions for the existing solar energy credits, as well as tax credits for off-shore wind-based projects. With the solar tax credit, or investment tax credit (ITC), set to decrease in 2021, this legislation gave those installing new solar projects two additional years of federal tax credits.

Since 2006, the solar ITC has encouraged more than 50% average annual growth for the solar industry but has relied on new legislation to keep it running throughout the past 15 years. Without the federal tax credit, it would have been challenging for residential solar installation to develop adequately against the long-standing fossil fuels. 

This federal solar tax credit gives homeowners a more even playing field to grow into renewable energy for now and the future. More development is still needed, though, with many scientists saying 2021 is the start of the last decade to get our act together with environmental issues.

Solar ITC Extention Details

The new laws give new solar projects a 26% credit for two more years. Instead of declining to 22% this year as initially planned by the original 2015 extension. The new package extends the 26% rate for projects starting through tax year 2022 for all residential and commercial installations. The solar ITC will drop to 22% for all projects in 2023 and will be completely removed the next year.

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History Of The Federal Solar ITC

This federal solar incentive program was established by the Energy Policy Act of 2005, which was originally set to expire in 2007. Due to its popularity, Congress extended the expirations date several times including the extension we are talking about now. Here is a short timeline of the many extensions:

  • 2006–2019: The solar ITC stayed at 30% of the entire cost of the system
  • 2020–2022: Property owners that install solar panels during this time get 26% back on their taxes.
  • 2023: Owners with new solar systems installed can deduct 22% from their taxes.
  • 2024: Only new commercial solar energy systems get 10% off at tax time. The federal credit for residential systems will be completely removed in 2024.

How The Solar ITC Works

If you own your solar panel system, you are eligible for the solar ITC. Even if you don’t have enough tax liability to claim the entire amount in one year, it will roll over each year until you use it all up. Remember that if you sign a solar lease or PPA, you are not eligible for the solar tax credit. If you are stuck in a solar lease, we can provide some advice for that situation.

To claim the federal solar tax credit, you need to own your panels, have them installed before 2023, and use IRS Form 5695 when filing your taxes. We advise that you consult a tax professional when filing with complex credits like the ITC. For more information, please visit our guide to the Solar Tax Credit.

The Time To Go Solar Is Now

The next two years are the window to take advantage of the solar tax credit on any of your solar projects. Don’t wait to save your hard-earned money and get started today with reliable and expert professionals like Option One Solar.

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Our solar experts can analyze your energy usage and design a system specific to your needs. Contact us to learn how much you can save.

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