Investment Tax Credit

BACKGROUND:

The Investment Tax Credit (ITC), also known as the Federal Solar Tax Credit and Solar Investment Tax Credit, was enacted by the Federal Government, as an intended strategy to promote renewable energy and expand the solar industry. The ITC was established by The Energy Policy Act of 2005. The intention of this act was to combat growing energy problems. This Act effectively changed US energy policy. It provided tax incentives (such as the ITC) for energy production of various types. It also provided sweeping reforms for fossil fuels with added accountability. However, revisions within the federal program since its inception have made it even more lucrative.

Today, The Investment Tax Credit is a leading incentive available, to convert your home or business to solar energy.


WHAT IT IS:

The Investment Tax Credit or Investment Tax Credit (ITC) is available for both home and business owners who invest in solar energy, and provides consumers with a Federal tax credit. The ITC provides a dollar-for-dollar tax deduction equal to 26 percent of the total cost of a solar investment from your Federal Tax filing. Simply put, you can deduct 26 percent of the cost of your solar system's installation.

In 2020, the primary driver of the ITC is its value, at 26 percent of the cost of a solar investment, with no cap to the value. The ITC applies for all things solar; from solar panels and energy storage devices to complete solar energy systems.


HOW IT WORKS:

The Investment Tax Credit (ITC) is currently a 26 percent federal tax credit claimed against the tax liability of residential (under Section 25D) and commercial and utility (under 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 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 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 solar property which has begun construction through 2019. The ITC then steps down according to the following schedule:


· 26 percent for projects that begin construction in 2020

· 22 percent for projects that begin construction in 2021

· After 2021, the residential credit drops to zero while the commercial credit drops to a permanent 10 percent


Commercial and utility-scale projects which have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023. The IRS issued guidance (Notice 2018-59) on June 22, 2018 that explains the requirements that a taxpayer must meet to establish that construction of a qualified solar facility has begun for purposes of claiming the ITC.


Some homeowners might not have enough tax “liability” or enough income tax to claim the benefit in one year. Under new regulations, you can “roll over” the remaining tax credit the following year (as long as the program is still active).


Thanks to new legislation, homeowners are eligible to receive The Investment Tax Credit as soon as construction for the solar panel system begins. New policies require the system to be operational before 2024. Previously, homeowners were not eligible until their solar panel system was in operation.


WHO IS ELIGIBLE TO CLAIM THE ITC?

Any business or homeowner that OWNS their solar energy system is eligible for the Investment Tax Credit. If you lease your solar panel system or take part in a utility scale project, you are not eligible for the ITC. The ITC applies to those who "own" their solar panel system, whether you purchase it directly or through financing.


HOW TO CLAIM THE INVESTMENT TAX CREDIT.

Home and Business owners can claim The Investment Tax Credit when they file their federal tax return. Just inform your accountant that you have converted to solar energy in the last year. Seek tax advice for Form 5695 if you plan to file your own taxes. Be sure to inquire about state solar programs that you qualify for in the process.


DON’T MISS OUT!

The Investment Tax Credit has been extremely effective in driving consumers to renewable energy. If you want to receive the FULL 26 percent credit, you must convert to solar energy sometime during the 2020 tax year. If you wait to convert to solar energy after 2020, you will likely only receive a fraction of the 26 percent return.

Currently, Congress has proposed reductions in The Investment Tax Credit, for both home and business owners. For the 2022 tax year, both home and business owners are projected to receive 22 percent incentive. 2022 will mark the end of the program for homeowners. In 2022, commercial projects will be eligible for a ten percent incentive.


The schedule for the Solar Investment Tax Credit is as follows:

YEAR: Commercial & Utility Scale: Residential ITC: 2019 30% 30% 2020 26% 26% 2021 22% 22% 2022 10% 0%



TAX CODE: ITC - 26 U.S.C. 48 et seq.


LEARN MORE:


The Investment Tax Credit and Solar Energy

Overlooked Policies for the Solar Investment Tax Credit


ABOUT NATIONAL ENERGY PARTNERS:

National Energy Partners (NEP) is a solar energy development company dedicated to bringing clean, renewable energy to businesses and residential consumers alike. At the forefront of the solar energy landscape, our passion is in fostering relationships through integrity, knowledge, and efficiency. NEP embraces the specific needs and challenges of each project, offering our valued clients the best experience through strategic management, trusted relationships, and eco‐friendly solar energy solutions. With over ten years of experience in the solar industry, our portfolio includes over $100 million of projects with more in development. Learn More at https://www.nepsolar.com


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