The federal investment tax credit (ITC) has been a crucial incentive for the growth of the solar industry in the United States. The ITC was first introduced in 2006 and has been renewed several times since then. In this article, we will take a closer look at the history of the federal investment tax credit and how it works with rooftop solar and home batteries.

The History of the Federal Investment Tax Credit

The federal investment tax credit was introduced as part of the Energy Policy Act of 2005. The act was designed to provide incentives for the development of renewable energy sources such as solar, wind, and geothermal power. The ITC was a tax credit for homeowners and businesses that installed solar panels on their properties. The credit was worth 30% of the total cost of the solar installation.

The ITC was initially set to expire in 2007, but it was extended several times over the years. In 2008, it was extended through 2016, and in 2015, it was extended again through 2021. In 2020, the ITC was extended once more, and was set to start a step down process in 2022 but with the passing of the Inflation Reduction Act homeowners and businesses can claim a tax credit of 30% of the total cost of their solar installation through 2032. After 2032, the residential ITC will start to phase out to 26% in 2033, 22% in 2034, and will end in 2035.

How the Federal Investment Tax Credit Works with Rooftop Solar and home batteries

Rooftop solar installations have become increasingly popular in recent years, and the federal investment tax credit has played a significant role in this trend. The ITC is available to homeowners and businesses that install solar panels on their properties, and it can be claimed as a credit on their federal income tax return.

To claim the ITC, homeowners and businesses must meet certain requirements. The solar installation must be new and placed in service before the end of the tax year for which the credit is claimed. The installation must also meet certain performance and safety standards. The ITC can be claimed for both residential and commercial solar installations. For residential and commercial installations, the credit is worth 30% of the total cost of the solar installation through 2032. 

The ITC is a credit against the taxpayer’s federal income tax liability. If the credit exceeds the taxpayer’s tax liability, the excess can be carried forward to future tax years. The credit can also be transferred to a third party, such as a solar installer or financier, through a process called tax equity financing.

Conclusion

The federal investment tax credit has been a crucial incentive for the growth of the solar industry in the United States. The credit has helped to make solar and battery installations more affordable for homeowners and businesses, and it has contributed to the rapid expansion of the rooftop solar market. The future of the ITC was at serious risk until Congress passed the landmark bill called the Inflation Reduction Act of 2022(IRA) which aims to curb inflation by reducing the deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy. 

In order to claim the Income tax credit you must submit Form 5695 when you file your taxes which can be downloaded by clicking the link. It is our recommendation that you discuss this credit and your eligibility with your accountant to ensure you qualify for the credit. 

Form 5695(download here)

Pulled a lot of info from this website:

SEIA website on ITC

IRA info pulled from:

Inflation Reduction Act of 2022