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How the Federal Solar Investment Tax Credit (ITC) Works


Understanding the Federal Solar Investment Tax Credit (ITC)

The ITC, better known as the Solar Investment Tax Credit, is a very important federal policy supporting and enabling solar energy expansion across the USA. Passed in 2006, it helped the US solar industry grow rapidly, creating jobs and injecting billions in the economy across the states.

The Solar Energy Industry Association (SEIA), a national trade association for the solar and solar storage industries, has been crucial in advocating and promoting this important tax credit and its extensions. Thanks to their efforts, the ITC remains the most important federal policy mechanism supporting the growth of solar energy in the United States.

Today, the SEIA is continuing its efforts to support legislation to extend Investment Tax Credit further. Click here to learn more.

Quick Facts About the ITC

The ITC (Investment Tax Credit) is a tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties, currently set at 30%.

The Section 48 commercial credit can be used by customer-sited commercial solar systems and large-scale utility solar farms.

The ITC enabled the 10,000% growth of the solar energy industry in the USA, since its implementation back in 2006, growing roughly 50% annually over the last decade.

In 2020, Congress passed a two-year delay of the ITC phasedown:

This 2020 ITC extension has lowered solar energy costs, as well as provided market assurance that enabled companies to promote innovation and drive healthy competition.

Most solar industry professionals promote a tax policy that provides stability and investment opportunities for solar energies, especially during national conversations about taxes, infrastructure and sustainability.

How Does the Solar ITC Work?

The Investment Tax Credit (ITC), currently set at 30%, is a federal tax credit that can be claimed against the tax liability of residential (under Section 25D) and commercial and utility (under Section 48) investors in solar energy. The Section 25D residential ITC allows the homeowner to apply the credit to their personal income taxes. The credit can be used by the owner when purchasing and installing a solar energy system. As for Section 48 credit, businesses that purchase and/or finance the solar energy system can claim this credit.

A tax credit is a reduction in income tax that a person or company would pay to the federal government. The ITC is based on how much one has invested in solar energy on their property. Both commercial and residential tax credits are 30%, as long as the amount is invested in eligible solar.

A Dollar for Dollar Reduction in Income Tax

A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 30 percent of the basis that is invested in eligible solar property.

Solar Systems on New Residential Homes

A homeowner can be eligible for the ITC the year they move into their property, provided they purchase a newly built home equipped with a solar panel system owned outright. If the system is leased or electricity is purchased through a PPA (Power Purchase Agreement), then it is the company that leases the system or signed the PPA that can claim the ITC. Contact Dominion Energy Solutions to learn how much the ITC can offset your solar cost combined with Virginia solar incentives.

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