U.S. TAX CREDIT FOR SOLAR SYSTEMS 2020-2022.
The main tax incentive offered by the federal government is known as the solar investment tax credit (ITC) for businesses, or the residential renewable energy tax credit for households. In either case, the federal tax credit allows you to reduce your income taxes owed by up to 26% of the total cost of solar system installation in 2020.
For example, if your rooftop solar system costs $30,000, you could reduce your income tax bill by 30% of that, or $9,000. The only catch is, you need to owe a sufficient amount in taxes to be able to make full use of this credit, which may be an issue for retired individuals or those on a fixed income. It is possible to carry the unused amount forward to the subsequent tax year, but after two years any remaining credit you’ve earned goes away.
 |
These solar tax credits were established in 2005, and have been extended 3 times since due to their popularity in supporting the growth of solar for businesses and homeowners. However, it is currently set to phase out over the course of the next few years. The tax credit will step down to 26% in 2020, then 22% in 2021, then remain permanent at 10% for commercial projects (while the residential credit will phase out).
As you can see in this chart from the Solar Energy Industries Association, these solar tax credits have been hugely successful, with 59% compounded annual solar growth since they were enacted.
The other primary federal tax incentive for solar is bonus depreciation, which is available only for businesses that go solar before January 1, 2023. This rule allows companies to claim 100% of the cost of their solar system as a business expense in the first year after installation, instead of spreading out the cost over 5 years or more with normal depreciation rules. Because businesses generally prefer to claim their tax savings as soon as possible, this is expected to further incentivize the use of solar energy.