The U.S Solar Investment Tax Credit (ITC), is a policy to incentivize clean energy projects. It was enacted in 2006 and as of 2021, the ITC is a 26% tax credit that can be claimed for residential and commercial solar projects. According to the Solar Energy Industries Association (SEIA), the ITC has helped the U.S solar industry grow at an annual average of 52%. The ITC extension of the 26% tax credit is expected to generate an additional 20 gigawatts of solar energy over the next five years. As a result, injecting billions of dollars into the U.S. economy.
How Does the ITC work?
Tax Credits are a dollar-to-dollar reduction of the income tax an individual or business owes. So, the Solar Investment Tax Credit can be claimed on federal income taxes for 26% of the cost of a solar voltaic system that begins construction within 2021 and 2022. A solar project is considered to have commenced construction when 5% of the final qualifying project cost has been incurred. With this in mind, it must be put into service within four years of construction commencement.
Solar ITC calculation example:
Project Cost: $2,000,000
Applicable Tax Year: 2021
Tax Credit Percentage: 26%
Tax Credit Calculation: Project Cost x Tax Credit Percentage = Tax Credit
$2,000,000 x 26% = $520,000
Therefore, the company would be able to claim a $520,000 tax credit at the end of the year, reducing dollar-for-dollar the amount of taxes they owe.
Thinking of going solar? Act now:
The current 26% tax credit is good for projects that commence through 2022. Starting in 2023, the ITC then steps down to 22%. In 2024 the tax credit takes a drastic decrease. It will drop down to only 10% for commercial projects and 0% for residential. This means residential and commercial customers can miss out on huge savings if they wait to move forward with a solar installation.
Big Shine Energy has a team of consultants to help you develop and install a solar PV system that meets your needs. We also understand that saving money and creating a cost-efficient project is important to our customers. Our in-house tax consultant will help answer questions specific to your project to make sure you maximize your savings.