Solar Panel Federal ITC Savings 2020 vs 2021
By: Solar Power Information, Facts Semper Solaris
Tags: Solar, Federal, Solar Panels, Savings Tips, Solar Energy

Solar Federal ITC Schedule | Source: NE Clean Energy

The Solar Investment Tax Credit (ITC) is an important federal policy that offers tax benefits to individuals and companies who purchase and install solar panels at their homes or commercial premises. As per this policy, you can deduct 26% off the cost of the solar power installation from the federal taxes in 2020. This incentive is going to become less by 4% at 22% in 2021.

The ITC was launched in 2006. Over the years, it has been recognized as one of the major factors leading to the growth of the solar industry in the United States. From 2006 to 2020, the solar industry is believed to have grown by over 10,000%. It has created thousands of new jobs and contributed billions of dollars to the US economy.

Since solar tax credit needs to be adjusted to your taxes, you need to have sufficient tax liabilities to take advantage of the benefit. However, the tax credit provisions allow you to roll over your remaining credit to the next year. This means if you could not use the entire 26% of your tax credit this year, you can get the remaining amount rolled over to the next year.

However, despite its overwhelming popularity and success, the credit has started to phase out for residential solar projects beginning in 2019. Commercial and utility solar projects would, however, continue to get 10% solar tax credit beyond 2023 when residential projects will getting any benefit at all.

The benefits of ITC are available to only those people or businesses who are the purchaser of the solar power system. The claim for the tax credit is made by the purchaser, and not by someone who has taken the solar power system on the lease or as part of the PPA.

After 10 years of ITC, it was about to expire in 2016. But on the consistent lobbying by the industry bodies, Congress approved an extension of the tax credit system in 2015. As per the new directive, the incentive given to prioritizing clean energy was to start falling from 2019 onwards.

ITC rates were to fall in the following manner:

Solar Panel Federal ITC Savings | Source: Revolusun

· 30% of the cost can be claimed as a tax credit in 2019

· Only 26% of the cost can be claimed as tax credit 2020

· Only 22% of the cost can be claimed as tax credit 2021

· No tax credit for residential projects but 10% tax credit to commercial and utility solar projects

As per the June 2018 IRS guidelines, the ITC eligibility is based on the commencement of construction of a solar panel system. However, the guidelines apply differently to commercial and residential projects.

Among other things, the ITC extension has enabled the market to develop a long-term strategy. It offered a more stable atmosphere for companies to invest. This has led to increased competition and innovations, which in turn has brought down energy prices for consumers. Solar power accounts for 2.5% of the total power generated in the United States.

Impact of ITC on Solar Industry

The ITC has come to be recognized as one of the most important policy frameworks that allow significant incentives for the production of clean energy. After the ITC policy was launched, the installation of solar panels has grown tremendously for personal, commercial, and utility purposes. The ITC has contributed significantly to making the American economy stronger and cleaner. It’s a big success story.

How Does the Solar ITC Work?

In 2020, ITC can be claimed at 26% against the federal tax liabilities. The option is open to residential as well as commercial and utility investors.

A tax credit allows a reduction in income taxes that an individual or business is otherwise liable to pay. The actual amount will depend on solar investment. The rates are the same for both residential and commercial users. The only condition is that the construction of the solar project should have begun before making the claim.

However, the tax credit will fall to 22% for the solar projects whose construction begins in 2021.

In 2022, the tax credit for residential solar projects will drop to zero while the same will be 10% for commercial solar projects.

Solar projects of commercial and utility-scale whose construction began before 31 December 2021 will still qualify for 30 (2019), 26 (2020), and 22 (2021) percent ITC provided these projects come into service before 31 December 2023.

ITC for New Residential Homes

If an individual buys a home with built-in solar panels, they are eligible for the ITC for the year they bought the property, provided they own the solar power system.

If the solar power system is leased to the property or the people, the right to claim the tax credit rests with the owner of the solar power system.

ITC Benefits: 2020 Vs 2021

The decline of the tax credit by 4% can be significant for larger and more cost-intensive solar power projects. For some people and businesses, the difference could be $1000 but for others, it may be substantially higher.

How to make most of the available opportunity

In 2020, the tax credit is available at a rate of 26%. To be able to qualify for a tax credit under this slab, you need to start the construction of your solar power system before 31 December 2020. So, hurry up!

In 2021, the tax credit would be available only at the rate of 22%, and to avail of this tax benefit, you must commence the construction of your solar power system before 31 December 2021.

So, start shopping early on.

Final Thoughts

The launch of Solar Tax Credit in 2006 turned out to be a significant step towards popularizing clean energy. Over the last 15 years, the policy has helped the solar panels industry to grow by over 10,000 times. But the incentives are going to phase out for residential solar projects while the commercial and utility projects will continue to have tax credit benefits at the rate of 10%.

For residential solar projects, 2021 will be the final year for which tax credit could be claimed. For other kinds of projects, this will be the year when they will have a higher tax credit at 22%. To benefit from the opportunity, they must start shopping for solar panels so that they begin the construction before 31 December 2021 and claim the benefits.

BREAKING NEWS

The Federal Solar Tax Credit has been extended at 26% for the next two years.