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 2008, which provided business certainty to project developers and investors. The ITC continues to drive growth in the industry and job creation across the country.
- The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties.
- The multiple-year extension of the residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 - a compound annual growth rate of 76 percent. (See more solar industry data.)
- The existence of the ITC through 2016 provides market certainty for companies to develop long-term investments that drive competition and technological innovation, which in turn, lowers costs for consumers.
What is the Solar Investment Tax Credit?
The Investment Tax Credit (“ITC”) is a 30 percent federal tax credit for solar systems on residential (under Section 25D) and commercial (under section 48) properties that, under current law, remains in effect through December 31, 2016. The Section 48 commercial ITC is used for utility-scale, commercial and residential sized projects. The company that installs, develops or finances the project uses the credit. The Section 25D residential ITC is used for residential sized projects, and the homeowner applies the credit to his/her income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes.
How does the Solar Investment Tax Credit Work?
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. Thus, both the commercial and residential ITC are credits equal to 30 percent of the basis that is invested in eligible property that is placed in service before December 31, 2016. After this date the commercial credit (under section 48) will drop to 10 percent and the residential credit (under Section 25D) will drop to zero—unless Congress extends this deadline or changes the “placed in service” component of the law to a “commence construction” provision.
It is incumbent on every member of the U.S. solar industry to be mindful of applicable laws and remain fully compliant with all statutory and regulatory requirements of the ITC and related programs. For more information on the Section 48 credit, please review this factsheet on Cost Basis for the ITC and 1603 Applications.
History of the Solar Investment Tax Credit
The Energy Policy Act of 2005 (P.L. 109-58) created a 30 percent investment tax credit (ITC) for commercial and residential solar energy systems that applied from January 1, 2006 through December 31, 2007. These credits were extended for one additional year in December 2006 by the Tax Relief and Health Care Act of 2006 (P.L. 109-432).
In 2007, global investment in clean energy topped $100 billion, with solar energy as the leading clean energy technology for venture capital and private equity investment. The solar tax credits helped to create unprecedented growth in the U.S. solar industry from 2006-2007. The amount of solar electric capacity installed in 2007 was double the capacity installed in 2006.
The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) included an eight-year extension of the commercial and residential solar ITC, eliminated the monetary cap for residential solar electric installations, and permitted utilities and companies paying the alternative minimum tax (AMT) to qualify for the credit. In 2009, under the American Recovery and Reinvestment Act (P.L. 111-5), the $2,000 credit cap on solar hot water installations was eliminated. For more information, visit DSIRE's website for more tax information on commercial and residential systems.
Why is the Solar ITC Important?
Tax policies related to renewable energy play a vital role in creating new high-wage American jobs, spurring economic growth, ensuring U.S. global competitiveness, lowering energy bills for consumers & businesses, and reducing pollution. The solar ITC is the cornerstone of continued growth of solar energy in the United States.The ITC reduces the tax liability for individuals or businesses that purchase qualifying solar energy technologies. As a stable, multi-year incentive, the ITC encourages private sector investment in solar manufacturing and solar project construction. The ITC has been tremendously successful in increasing deployment and lowering costs of solar energy. Since the eight-year ITC was put into place, solar prices have consistently fallen year after year while installation rates and efficiencies have continued to climb. The success of the ITC shows that a stable, long-term incentive can reduce prices and create jobs in solar energy.
- The ITC has fueled dramatic growth in solar installations. The market certainty provided by a multiple-year extension of the residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 - a compound annual growth rate of 76 percent.
- The ITC has fueled dramatic job creation. Solar employment has grown by 86% in the last four years and is creating jobs at a rate nearly 20 times higher than employment growth in the overall economy.
- The cost of solar for consumers has continued to fall. The existence of the ITC through 2016 provides market certainty for companies to develop long-term investments that drive competition and technological innovation, which in turn, lowers costs for consumers.