2021 ITC Extension Info & Updates

Federal Tax Credit
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Questions to Ask New Mexico Solar Companies

Americans are becoming more aware of the need to decrease their carbon footprints. However, without the right price tag, some homeowners won’t strive for energy independence.

The Energy Policy Act of 2005 addresses the issue of renewable energy costs. It provides tax incentives and loans for different clean energy types, including solar panels for homes. This bill paved the way for other renewable policies, such as the investment tax credit (ITC). Since the first ITC extension in 2008, many individuals have benefited from solar-powered homes.

How Does the Federal Solar Tax Credit Work?

Those who qualify for the ITC receive a dollar-for-dollar credit. This solar tax credit deducts a percentage from the cost of solar and takes it out of the solar owner’s federal taxes owed.

This credit, however, isn’t immediate. The customer purchases the system then they file for the federal tax credit the following tax year.

Another particularity of the ITC includes how to obtain it. Although it’s a dollar-for-dollar credit, recipients don’t receive a lump sum.

Solar Tax Credit Carryover

Those who owe less than their tax credit only get what they currently owe in federal taxes for that year. The rest rolls over from one year to the next until used. How long paying out the tax credit takes depends on how much the solar owner owes each year.

Do I Qualify for the Solar Tax Credit?

To qualify for the credit, individuals first need to own their solar arrays. Leased solar systems will receive this tax credit, — however, it goes to the solar company that owns it, not the homeowner.

Secondly, applicants need taxable income. If the homeowner doesn’t have anything to apply the credit to, it won’t do them any good. 

Thirdly, although it may seem obvious, it still needs stating — people can’t receive this tax credit if they don’t have solar panels. To qualify for solar panels, homeowners need a qualified roof, good credit, or the ability to pay in cash. Additionally, they need an average of 500-kilowatt-hours of monthly electricity usage, which equates to 6,000 kilowatt-hours annually.

How the Federal Tax Credit is Changing in 2021

Unless you follow solar news, you may not know that this solar tax credit had a quick expiration date. Before the solar ITC extension Congress just passed in December 2020, this tax credit would have decreased to 22 percent in 2021 and then disappeared for residential solar in 2022.  

Thankfully, because of the extension, the ITC now will stay at 26 percent for another two years. It will then decrease to 22 percent in 2023.

What the Extension Means for Residential Solar

Solar has become more than a way to help the environment. The savings from the ITC have made it cheaper than fossil fuels. This extension will continue to make this energy option available for interested homeowners. 

Those considering solar shouldn’t hesitate. If you want solar, but want to wait until it’s affordable, now is the time.

Not only does a solar loan have no up-front costs but the monthly payments replace the electricity bill, meaning it doesn’t cost anything extra. Over the life of the system, it ends up costing far less than projected utility-supplied electricity costs. The math works out because the loan term ends within 10 to 15 years, leaving customers with 10 to 15 years on their 25-year warranty and the potential to last for 40 years or more.

It’s simple economics. Traditional, coal-based power still powers most American homes, but it’s an increasingly scarce resource with limited supply, meaning prices for electricity powered from these sources will continue to rise.

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