How much would you save with the federal solar tax credit?
Find out with Energy Solution Providers.
Buried at the end of an otherwise not great year was a glimmer of hope for home and business owners interested in going solar in 2021—there’s been a change to the federal solar tax credit! It’s understandable why you might have missed the news among everything else going on recently, so here’s an explainer on what we had been expecting this solar incentive to look like in 2021 versus what changed, and how you can benefit and save money on solar installation this year with Energy Solution Providers.
The Old Solar Tax Credit (How It Started)
The federal solar tax credit, officially called the solar Investment Tax Credit (ITC), was originally enacted in 2006, and first extended in 2015. The incentive allows home and business owners to claim a credit on their federal taxes due based on a percentage of their total solar installation costs.
When the tax credit first started, the percentage was 30%. Under the 2015 extension schedule, the ITC would drop to 26% in 2020, then to 22% in 2021, and finally, in 2022, be completely eliminated for residential solar installation and reduced to a permanent 10% for commercial solar.
However, that’s now changed, thanks to a new extension passed into law as part of the joint COVID-19 relief bill and the omnibus spending bill at the end of 2020.
The Solar Tax Credit Extension for 2021 (How It’s Going)
As a result of legislative wrangling, the ITC has been extended for an additional two years! Here is the new timeline for the federal solar tax credit for 2021 and beyond:
2021: 26%
2022: 26%
2023: 22%
2024 and onward: 0% residential, 10% commercial
How Do I Qualify for the Federal Solar Tax Credit?
What the extension means is: You’re in luck! You’ve been given additional time to qualify for the highest tax credit, which can help you save thousands of dollars on solar installation.
There is a bit of fine print, however. If you’re a homeowner looking to qualify for the ITC, you have to own your solar panels—no leasing. Also, your solar energy system must be ‘placed in service’ by December 31st of the tax credit year you’re claiming for. The good news is, if you don’t have enough federal tax liability to claim the entire credit in one year, you can rollover any remaining balance into the next tax year.
For businesses and commercial solar projects, there is an additional provision that can help you maximize your savings—a 5% “safe harbor” rule. If construction begins (physical work test) or at least 5% of your total solar installation project costs has been incurred by the end of the year, you’ll qualify for that year’s credit percentage, as long as construction continues and your system is up and running within the next 48 months.
There Are Many Ways to Save on Solar with Energy Solution Providers
At Energy Solution Providers, we’re here to help you maximize your upfront and ongoing solar savings. We’ll help you qualify for the highest ITC credit possible, and guide you through additional solar incentives, like local Arizona tax credits and utility rebate programs. Plus, with great solar financing available through our partnership with Koala Financial Group, we can help make upgrading to solar now—and qualifying for the 26% tax credit rate—easier than ever.