How Does the Federal Solar Tax Credit Work?

Since the solar Investment Tax Credit (ITC) was enacted by the federal government in 2006, the United States solar industry has seen a growth of more than 10,000%. Renewable energy is more available than ever before, a win for the planet and the economy.

Have you considered installing solar panels but are concerned about the upfront costs? The federal solar tax credit (also known as the Solar Investment Tax Credit or ITC) can help. This initiative can save you money as well as speed up the rate of return on your investment.

What is the federal solar tax credit? How does it work? And how can you reap the benefits? Let’s delve into the topic and answer some basic questions about the current federal tax credit for solar panels.

What is the federal solar tax credit?

The ITC is a credit against your tax liability currently available to new residential and commercial solar panels to help cover the cost of your system. It is claimed on your federal income taxes and is a dollar-for-dollar credit (meaning if you claim a $2,000 federal tax credit, your federal income taxes owed are reduced by $2,000).

How long will the federal solar tax credit be available?

Due to an extension passed in December 2020, federal tax credit currently runs through December 31, 2023. It will expire for residential systems starting in 2024 unless Congress decides to renew it.

Infographic from SEIA illustrating tax credit stepdown

What expenses are included in the federal solar tax credit?

You are able to deduct expenses such as:

  • The panels and cells themselves
  • The labor costs involved in onsite preparation, assembly, and installation. This includes permits, inspection, and developer fees
  • Balance-of-system equipment (i.e. wiring, inverters, and mounting equipment)
  • Energy storage devices for the associated solar panels (these must be exclusively charged by the solar panels, and must be installed prior to the ITC expiry date)
  • Sales taxes, if applicable

How much federal solar tax credit can I get?

The current credit rate for systems installed and operational in 2020-2022 is 26% of your solar system cost. There is no maximum amount that can be claimed.

Solar panel systems that become operational in 2023 are eligible for a 22% federal tax credit.

How soon after installation can you claim the credit? There are two more steps required before you are able to take full advantage of the ITC.

After a system is installed on your property, it is still subject to a final building inspection. This inspection must be passed. Once your solar system is approved, net metering is provided by your utility company. Your system will now be ready to start generating electricity.

Because of these last two requirements, some time will lapse between installation of your solar system by Iconic Energy and the first production of electricity. You will need to keep this in mind when considering tax credit end dates and allow plenty of time before the credit is set to expire.

Where can I find more information?

On our Resources page under “Federal Solar Tax Credits”, you will find a link to documents from the US Department of Energy. We encourage you to look these documents over carefully.

If you would like in-person assistance as you invest in solar, please reach out to Iconic Energy through our Free Quote page. We offer free consultations and are happy to answer all your questions.

Whether you are looking to install residential solar or a large commercial utility grid, the solar professionals at Iconic Energy are ready to help. We are local and have the best warranty around! Learn more about our company here.