One of the most important federal policy mechanisms driving the success of the solar industry is the Solar Investment Tax Credit (ITC). Simply put – if you pay income tax, you qualify for this tax incentive. The ITC is a 30% tax credit for solar systems on residential and commercial properties. Yes, that means 30% of your gross solar investment costs can be recouped. That not a bad start to getting your return on investment.
The residential ITC, under IRS Section 25D, allows homeowners to apply this credit to their personal income taxes. When homeowners purchase these systems outright (or get them financed - there are many attractive and available options), this credit can be used.
Likewise, the commercial ITC, under IRS Section 48, allows businesses to install solar projects and in turn take these tax credits. For instance, a metal fabrication shop that uses a lot of electricity can install solar, offset their monthly electric bill (savings!), and take the 30% ITC given that the business has income tax liability. We have successfully installed systems on businesses such as grain drying facilities, dairies, cold storage facilities, car dealerships, shops, retail facilities, and our own corporate manufacturing and deployment facility. If you pay significant energy bills, and have income tax liability, you are a great candidate for solar.
This federal solar ITC is currently 30% for the tax years of 2018 and 2019. The ITC then steps down to 26% in 2020, and 22% in 2021. After 2021, the business ITC will drop to 10%, and the residential ITC goes to zero.
Since the solar ITC was first implemented in 2006, solar installations have grown by over 1,600%, which is a compound annual growth rate of around 76%. Other factors have contributed to solar success, such as accelerated depreciation on the business side, grants, utility policies and incentives, and the competitive global marketplace which have all collectively driven the price per watt down an incredible amount in the past 10 years. Solar is now at a point where it is beginning to compete financially with more traditional sources of energy in this country. Did I mention the actual fuel, the sun, is free, and green?
Please contact us if you have additional questions regarding the ITC or have any other inquiries. We are here to help!
Vice President of Engineering
Harvest Energy Solutions