In December of 2020, Congress voted to pass an extension on the lucrative Investment Tax Credit program, one of the largest financial incentives to motivate Americans to go green and switch to solar energy. The program was initially slated to sunset by the end of the year 2023, but the extension allows the program to continue on for an additional year, including allowing those who install solar energy systems this year (2022) to enjoy the credit at the same rate as last year.
How the ITC Works
The Investment Tax Credit was first enacted in the year 2006 as a way of encouraging more and more Americans to invest their money in renewable energy sources. Specifically, the program provided an incentive for homeowners, business owners, and commercial property owners to save on the high cost of solar installation by offering a dollar-for-dollar credit on annual tax burdens.
For the first several years of the program, those who installed a solar energy system were able to claim up to 30 percent of the cost of their new system as a credit on their tax return (with a few restrictions and exceptions). The program was initially intended to sunset beginning in the mid-2010s, but several advocacy groups lobbied to have it extended as long as possible. And for good reason: since the ITC was enacted, the solar industry has grown more than 10,000% and the United States has become one of the world’s leaders in renewable energy production.
With the most recent delay in the phasedown, homeowners who install solar energy systems can continue to claim up to 26% of the cost of their new system as a credit on their federal tax return. Here’s an example: if your qualifying solar energy system carried a price tag of $10,000, you would be eligible to receive a tax credit for up to $2,600 on your federal taxes for the year your solar installation project completed. If your federal tax burden for that year were to be, say, $5,000, the credit from the ITC would then reduce your personal tax burden to just $2,400.
Why It Pays to Switch Today
As stated previously, the ITC program is slated to sunset soon. In fact, the tax credit drops again starting on January 1st, 2023. If you want to take advantage of this program and receive the full extent of your tax credit, your installation project needs to be completed by December 31st of this year. The program drops to 22% in the year 2023, and by 2024 it will be reduced to nothing for homeowners and just ten percent for commercial and utility-scale projects.
In other words, time is running out. Now is the best time to switch to solar and take advantage of one of the strongest financial incentive tools the solar industry has ever seen. If your credit eliminates the entirety of your tax burden, then you will even be able to roll over the remainder of your credit to next year so you can properly utilize the entire thing.Want to learn more about taking advantage of the federal Investment Tax Credit by switching to solar? Contact August Roofing and Solar by dialing (805) 519-8099 today and learn more about our SolaRoof Program.