The Solar Investment Tax Credit, also known as the ITC, was designed to incentivize homeowners and businesses to install solar panels by allowing them to reduce their federal tax liability, based on the total costs of their solar installation. The ITC has helped thousands of people here in California and across the country save big on solar, but it has never been a permanent incentive.
The solar tax credit has been on a step-down schedule since it took effect in 2006, though it has been extended twice: first, in 2015 under the Consolidated Appropriations Act, and then again in 2020 as part of the Appropriations Omnibus Spending Bill. While this most recent extension gives you a little more time to take advantage of major savings, the step-down schedule remains in place, making now the best time to invest in solar energy for your home.
How Much Can You Save With the Solar Tax Credit?
The amount you save with the solar tax credit depends on two things: the cost of your solar installation and the year in which it’s installed.
Let’s take a look at the ITC schedule as it currently stands, following the 2020 federal solar tax credit extension:
2021-2022: Homeowners and businesses are eligible for a tax credit worth 26% of their total solar installation costs.
2023: Homeowners and businesses are eligible for a tax credit worth 22% of their total solar installation costs.
2024: The ITC is no longer applicable to homeowners. Businesses are eligible for a 10% credit indefinitely.
To see how much you can save, let’s look at an example. Say you were to spend $30,000 on your solar installation — if the system were installed by the end of 2022, you would be eligible for a tax credit worth 26% of $30,000, which is equal to $7,800.
If you were to wait until 2023 to install your solar panels, that percentage would drop to 22%, and your tax credit for the same project would be $6,600—still substantial, but a significant drop.
If you were to wait until 2024 to install residential solar, you would not be eligible for any ITC savings at all.
As you can see, the ITC is moving closer and closer to obsoletion for homeowners every day, and if you want to save as much as possible on your solar PV system, you should get your project started quickly. Solar installation doesn’t happen overnight, and if you wait too long to get started, you could miss the deadline due to unforeseen circumstances, like manufacturing delays.
Who Qualifies for the Federal Solar Tax Credit in 2021?
There are a few parameters that homeowners must meet in order to qualify for the solar investment tax credit. They must:
Own their solar energy system (no solar leasing)
Own the property the panels are installed on
Have enough taxable income
To qualify for a specific ITC percentage, the solar energy system must be “placed in service” (turned on) by December 31st of that calendar year. So, to qualify for the 26% credit, your solar panels must be in use by December 31st, 2022.
Greiner Makes Going Solar Simple for California Homeowners
Having solar panels installed is a big project, and you want to trust the team you choose to install your new residential solar system. At Grenier, we understand how overwhelming the process can be, and we’ll be there to help every step of the way. Our expert team will evaluate your property and energy usage, talk to you about the different options available and help you choose a system that aligns with your needs and will help you save as much energy and money as possible.
We’ll also help you qualify for the ITC as well as financing and other local incentives that are available to homeowners in the Davis, Dixon, and Vacaville, CA area. Learn more about financing and tax credits here.