The federal solar energy credit is a tax credit that can be claimed on federal income taxes for a percentage of the cost of a solar photovoltaic (PV) system. This credit is available for residential, commercial, and utility investors in solar energy property.
In December of 2020, the phasedown of the Solar Investment tax credit was extended. The Biden Administration has indicated plans to include an additional extension of the tax credit in future legislation, however there is no guarantee that this will be approved and passed by Congress. The tax credit is equal to a percentage of the cost basis of installing eligible solar energy property.
General Information on the Tax Credit:
The tax credit is a non-refundable dollar-for-dollar credit reduction in the amount of income taxes the taxpayer would otherwise be required to pay.
To qualify, the taxpayer must be the owner of the system. Leased systems do not qualify.
The tax credit applies to both residential and commercial systems, with the exception of the 2024 tax year.
Business-Related Solar Investment Tax Credit Overview:
For business-related solar property investments, the credit is as follows:
26% credit for projects commencing construction between 1/1/2021 and 12/31/2022 but placed in service before 2026
22% credit for projects commencing construction between 1/1/2023 and 12/31/2023 but placed in service before 2026
10% credit for projects commencing construction after 12/31/2023, or placed in service after 12/31/2025
IRS Notice 2018-59 provides guidance on the requirements needed to be met to establish that construction of a qualified solar facility has begun for purposes of claiming the Investment Tax Credit
Depreciation of Solar Investment Property
Depreciable basis of the solar equipment must be reduced by 50% of the energy credit determined
Recapture of Credit
Taxpayer may have to refigure the Investment credit allowed and recapture all or a portion of it if:
The solar investment property is disposed of before the end of the 5 full years after the property was placed in service and/or the business use of the property changes during the recapture period such that it would no longer qualify as solar investment credit property
Residential-Related Solar Investment Tax Credit Overview:
For residential-related solar investments, the credit is as follows:
26% credit for systems installed between 1/1/2021 and 12/31/2022
22% credit for systems installed between 1/1/2023 and 12/31/2023
Credit expires for 2024 unless further extended by Congress
Credits are taken when taxpayer files their annual tax return: