Blog Updated: September 2024

With the passing of The Inflation Reduction Act (IRA) in 2022, the federal Investment Tax Credit (ITC) was extended. Due to this piece of historic legislation, the base tax credit will remain at 30% through 2032, with the possibility of stackable bonus tax credits. You can learn more here.

While this is big news for the solar industry, the details of the tax credits can be confusing. To help you navigate the tax credits and the IRA, we gathered some of the most frequently asked questions on how to qualify. Here's what you should know about meeting the requirements. 

What’s the difference between a tax credit and a deduction?

According to H&R Block, when you receive a tax credit, it reduces the taxes you owe dollar for dollar and can provide you with a larger refund of your withholding. A deduction lowers your taxable income and the value is quantified by your effective tax rate. Since the federal ITC is a credit, not a deduction, it results in a larger monetary benefit for our customers.

What is happening with the federal Investment Tax Credit?

In 2022, The Inflation Reduction Act (IRA) was passed. This was a historic piece of legislation as it was the largest investment in reducing carbon pollution in U.S. history.

Included in this Act was an extension of the ITC. It will remain at 30% through 2032 for residential and commercial property owners. You can learn more about the IRA here.

After 2032, homeowners will get 26% in 2033, 22% in 2034, and in 2035, the credit goes away. The phase out is more nuanced for commercial customers. A breakdown of this phase out can be found in this summary from SEIA.  

What’s the difference between the commercial and residential solar tax credit qualifiers?

For homeowners, if you install solar from now until 2032, you're eligible for the 30% tax credit.

For commercial properties, it's a little more complex. Here are some of the key takeaways for property owners to know about the Federal Investment Tax Credit for commercial solar installations:

• The ITC is 30% until 2032, including all projects that were placed in service in 2022.
• Elective pay is now available for tax exempt entities like nonprofits, schools, and local governments. This provision allows these organizations to receive the value of tax credits as cash payments, even if they don't have taxable income to offset.
• Starting in 2023, it became possible to increase the tax credit (and elective pay) through adders which are bonuses given for certain criteria (for example: you can add an additional 10% if the project is located in what the IRS has designated an “Energy Community”). Check out this chart from the Solar Energy Industries Association (SEIA) for a complete list of adders.
• You now have the option to choose between the ITC or the Renewable Electricity Production Tax Credit (PTC). The PTC is a per kWh federal tax credit for electricity generated by qualified renewable energy resources. Your solar contractor can help quantify the value of the tax credit, so you can make an informed decision on whether to pursue the ITC or PTC.
• The Inflation Reduction Act also includes incentives to increase domestic manufacturing, which will provide support for supply chains and increase local jobs.

To learn about the financials of going solar on your specific commercial property, reach out to our commercial team.

If I get solar panels on my rental property, does it qualify for the federal Investment Tax Credit?

While the property doesn’t have to be your primary residence, according to Turbo Tax, you can’t claim the residential solar tax credit for installing solar panels at any rental units you own. However, your rental property may be eligible for the business ITC under IRC Section 48, according to the U.S. Department of Energy.

You also won’t qualify for the federal solar tax credit if you are a renter and your landlord installs solar panels since you must own the solar system to claim the tax credit.

Commercial property owners that install solar at properties that they lease are eligible for the ITC. For commercial property owners with triple net leases, it can be hard for owners to see the benefit of adding a solar PV system to their rental properties, when these improvements will lower their tenants’ utility bills. Read more about how to overcome the “split incentive” here.

Learn more about the federal Investment Tax Credit

Interested in learning more about solar for your property and claiming the ITC? Reach out to our team of solar developers to find out how investing in solar can lead to energy independence, reduce OpEx for commercial customers, and generate tax benefits. Our solar experts don’t work on commission, and our focus is always making sure you have the information you need to make the best decision for you and your property.