Explaining the Solar Investment Tax Credit

Explaining the Solar Investment Tax Credit

The solar Investment Tax Credit (ITC) has proven to be the most successful federal policy to support the growth of solar energy in the United States. Since enacted in 2006, the ITC has made way for the U.S. solar industry to grow by more than 10,000%, which has created hundreds of thousands of jobs and invested billions of dollars in the U.S. economy. Utility-scale solar has grown rapidly across the country and the long-term stability of this federal policy has allowed businesses to continue driving their operating costs down. The ITC is a clear policy success story — one that has resulted in a stronger and cleaner economy.

A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company would otherwise pay to the federal government. The solar Investment Tax Credit (ITC) is a 26% federal tax credit claimed against commercial and utility-scale solar energy properties (under Section 48).

In late 2020, Congress passed an extension of the ITC which has provided market certainty for both prospective solar energy customers and solar energy developers.

The ITC then steps down according to the following schedule:

  • 26% for projects that begin construction in 2021 and 2022
  • 22% for projects that begin construction in 2023
  • After 2023, commercial credit drops to a permanent 10%

Commercial and utility-scale projects that have “commenced construction” before Dec. 31, 2023 may still qualify for the 26 or 22% ITC if they are placed in service before Jan. 1, 2026. The IRS issued guidance (Notice 2018-59) on June 22, 2018 that explains the requirements that a taxpayer must meet for purposes of claiming the ITC to establish that construction of a qualified solar facility has begun.

Despite the current progress, solar energy still only represents about 2.5% of energy production in the United States. Moving forward, a tax policy that continues to provide stability and investment opportunities for solar energy should be a part of any national discussions about tax, infrastructure, or decarbonization for the benefit of the economy and environment.

Stone Creek Solar does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.