Update: The Inflation Reduction Act of 2022 extended the federal solar tax credit. It will remain at 30% through 2032. Learn more here.  

Publish Date: January 8th, 2021

While 2020 provided plenty of challenges for the solar industry, it ended on a hopeful note. A few weeks before the scheduled step down of the federal solar tax credit (ITC) in 2021, Congress extended the ITC at 26% for another two years.

This is great news for customers getting systems installed in 2021 who were expecting the 22% tax credit as well as for anyone else who wasn’t able to take advantage of the ITC in 2020. Now, they will be able to take advantage of the 26% amount with the 2021 solar tax credit.

Here’s What We Know

After much back and forth in Congress over the details of the new stimulus package, a bipartisan agreement was reached. Among the items listed in the bill is an extension of the federal solar tax credit.

As of 2020, the federal tax credit allows a homeowner and commercial property owners to take a credit of 26% of the total system cost for a PV solar array that is installed at their residence or commercial property. Starting in 2021, that amount was set to drop to 22%. In 2022, the residential tax credit was scheduled to drop to 0% and the commercial tax credit was scheduled to drop to a permanent 10%.

The extension pushes that timeline back by two years. New policy allows for both home and commercial solar projects to access the 26% tax credit until the end of 2022. Starting in 2023, the federal solar tax credit will step down to 22%. The federal solar tax credit will then drop to zero for homeowners and 10% for commercial property owners in 2024.

What the Extension Means for Solar Customers

The good news is this – if you signed up to have your system installed in 2021 and were told you would only be getting the 22% federal solar tax credit, you’ll get an extra 4% off your solar system – that equals between $600 and $1,600 in savings on average for homeowners. Commercial customers can receive about an extra $35,000 in savings on a 500-kW system. If you couldn’t take advantage of the 26% federal solar tax credit in 2020, now you have until the end of 2022 to do so.

If you’re a commercial property owner, you have the option to use safe harbor to take advantage of the federal solar tax credit if your system isn’t complete by the time the ITC steps down in 2023.

The best time to plant a tree was 20 years ago. The second-best time is now.

Why You Shouldn’t Wait to Go Solar

Unfortunately, while the federal solar tax credit was originally 30%, it is not anticipated to return to that amount or get any higher than 26%, so don’t delay in hopes that you’ll strike a better deal down the road. There is no guarantee that the federal solar tax credit will be extended again.

If you’re getting solar installed on your home, you’ll need to have your system completely installed and placed in service by the end of 2022 to get the 26% credit. This is true even if you signed your solar contract in 2021 or 2022, so don’t put it off to the last minute. Installation schedules fill up quickly, and you’ll want to get in the queue as early as possible. The sooner you have your solar panels up and producing, the sooner you’ll be saving money on utility bills and earning your ROI.

Another way to look at it is this: The best time to plant a tree was 20 years ago. The second-best time is now.

Have More Questions?

Interested in learning more about how to qualify for the federal solar tax credit or to see if solar is right for you? Our non-commissioned solar experts will answer any questions you have about solar and put together a free quote whether you whether you want to see what solar would look like for your home or commercial property. Don’t hesitate to reach out if you’re interested in saving money through the ITC and energy through solar – our installation queue often fills faster than expected.

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• How Much Does It Cost to Go Solar, Anyway?
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