Making the switch to solar energy can be great for many reasons. Typically, homeowners not only reap the benefits of lower utility bills, generating price-protected energy and helping the environment, they also get the chance to take advantage of the Investment Tax Credit (ITC). This helpful tax incentive can equate to big savings for millions of homeowners transitioning to clean energy nationwide!*
Whether you have solar, are looking to go solar or are just beginning to think about moving away from traditional energy sources, here is everything you need to know about the ITC and how you can benefit from it.
What is the ITC?
The Investment Tax Credit, or also known as the federal solar tax credit, “allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes.” Another great feature of this tax credit, is that the ITC applies to residential and commercial systems and has no cap on its value.1
The History of the ITC
In 2005, the Energy Policy Act had established the ITC, and it was only supposed to last until the end of 2007. Since the ITC was so popular and supported the United States’ transition to renewable energy, it has been extended. In fact, since it was so successful, Congress had extended the deadline multiple times, most recently in
How Does it Work?
First things first, you need to have solar panels! Next, you need to own your solar panel system. Even if you don’t have enough tax liability to claim the entire credit in one year, you can rollover the reaming credits into future years. Keep in mind that this is only valid if the tax credit is still in effect. However, keep in mind that if you lease or have a power purchase agreement (PPA) with your solar installer, you are not the owner of the system you cannot benefit from the tax credit.1
Quick Facts: The ITC
- The residential and commercial solar ITC has helped the U.S. solar industry grow by more than 10,000% percent since it was implemented in 2006, with an average annual growth of 50% over the last decade alone.2
- The 2020 extension of the ITC has provided market certainty for companies to develop long-term investments that drive competition and technological innovation, which in turn lowers energy costs for consumers.2
- Congress passed a two-year delay of the ITC phasedown in 2020.2
How to Claim the ITC
Now that you’re an expert on the history of the ITC, how can you claim its benefits? When you file your taxes with the IRS, you will want to file a Form 5695. You can fill out this form at the same time you would file your federal tax return. Be sure to mention to your accountant or tax professional that you’ve gone solar in the past year, or if you file your taxes yourself, you will just need to follow three steps.
- Determine if you are eligible for the ITC
- Complete IRS Form 5695
- Add your renewable energy credit information to your typical Form 1040.3
For more detailed information on the process and how it applies to you, please consult with an accountant or tax professional.
Go Solar with Momentum!
There is no better time to switch to cleaner, price-protected energy than today! Although the ITC remains active, it may not last forever. Fortunately, our team has over a decade of experience in the solar industry and is ready to help with your project, no matter the scope.
Call us today to learn more at 1-888-MOMENTUM!
*Momentum Solar do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.