The Energy Policy Act of 2005 created a federal tax credit known as the solar Investment Tax Credit (ITC) for residential properties. This 30% tax credit applies to solar-electric systems, solar water heating systems, and fuel cells.
The ITC was extended in 2008 by the passage of the Energy Improvement and Extension Act. This Act allowed other renewable technologies, such as small wind-energy systems and geothermal heat pumps, to take advantage of the tax credit.
In 2009, a new provision allowed each home’s ITC credit to exceed $2,000.
Residential tax payers were able to claim the 30% credit once the installation of solar energy units was completed. The ITC allowed citizens to claim the credit for expenditures on the installation of residential solar, including labor, on-site preparation, assembly and installation, and piping and wiring.
If a home’s tax credit exceeded the amount owed in taxes, the excess was eligible to be carried over into 2016.
This policy was initial set to expire on December 31, 2016. However, on December 18, 2015, congress passed a spending bill that extended the credit for an additional 5-years, with some alterations. The new bill extends residential solar tax credits beyond December 31, 2016, but steps it down from 30% to 10% by the end of 2024.
Projects that commence by the end of 2019 will receive the current 30% credit, projects that start construction in 2020 are eligible for a 26% credit, and projects that start construction in 2021 will receive a 22% credit. To receive any of these credits, projects must be completed by 2024.
For future information on the ITC, please visit: