Provided by SEIA.org
Click here for a Fact Sheet covering the basics of the Solar Investment Tax Credit (ITC).
The solar Investment Tax Credit (ITC) is one of the most important federal policy mechanisms to support the deployment of solar energy in the United States. SEIA successfully advocated for a multi-year extension of the credit in 2015, which provides business certainty to project developers and investors. The ITC continues to drive growth in the industry and job creation across the country.
The Investment Tax Credit (ITC) is a federal tax credit claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property. The Section 25D residential ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes. In the case of the Section 48 credit, the business that installs, develops and/or finances the project claims the credit.
A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 26 percent of the basis that is invested in eligible property which have commence construction through 2022. The ITC then steps down to 22 percent in 2023. After 2023, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent.
Commercial and utility projects which have commenced construction before December 31, 2022 may still qualify for the 26 percent ITC if they are placed in service before December 31, 2023. The Treasury and IRS are currently drafting guidance which will inform solar developers of which percentage of ITC they will qualify for depending on when they started their project.
The Energy Policy Act of 2005 created a 30 percent ITC for solar energy systems that applied to projects placed in service between 2006 and 2007. In 2006, the Tax Relief and Health Care Act extended these credits for one additional year through end of 2008.
In 2008, the Emergency Economic Stabilization Act included an eight-year extension of the ITC, and eliminated the monetary cap for residential solar electric installations.
In 2015, the Omnibus Appropriations Act included a multi-year extension of the ITC described above and changed the previous “placed-in-service” standard for qualification to a “commence construction” standard for projects completed by the end of 2023.
In addition to the commence construction guidance underway at the Treasury and IRS referenced above, a broader regulatory project is also underway defining what property qualifies as solar energy property. Examples of property under consideration are energy storage, carports, solar canopies and roofing.
The ITC has proven to be one of the most important federal policy mechanisms to incentivize the deployment of solar energy in the United States. As a result of the multi-year extension of the credit enacted in late-2015, solar prices are expected to continue to fall while installation rates and technological efficiencies continue to climb. The ITC is nothing short of a tax policy success story and we expect this to continue to play out over the next several years.
We expect the 27 gigawatts of solar energy installed in the US at the end of 2015 to reach nearly 100 GW by the end of 2020. Moreover, the roughly 210,000 Americans currently employed in solar is expected to double to 420,000 in the same time period - all this while spurring roughly $140 billion in economic activity. The continued success of the ITC demonstrates that stable, long-term federal tax incentives can drive economic growth while reducing prices and creating jobs in one of America’s fastest-growing industries.
Impacts of Solar Investment Tax Credit Extension (Fact Sheet)
Cost Basis for the ITC and 1603 Applications (Fact Sheet)