Federal Solar Tax Credit Extension Included in COVID19 Relief Package

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Federal Solar Tax Credit Extension Included in COVID19 Relief Package

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    The federal investment tax credit (ITC) for solar was set to begin phasing out in 2021, but Congress approved a 2-year extension as part of the COVID-19 relief package that was passed in December of 2020.

    What Is the Federal Investment Tax Credit for Solar?

    The solar ITC is an incentive for homeowners and business owners who install new solar energy systems on their properties, allowing them to deduct 26% of the total cost of the project from their federal tax liability amounts. With average residential solar energy systems costing around $15,000 to install, this presents a significant savings of about $3,900.

    What Does the Extension Mean For Me?

    The tax credit amount was set to drop to 22% in 2021 and then in 2022 step down to 10% for commercial projects only with no credit for residential projects. Now, thanks to this new legislation, the credit amount will remain at 26% for 2021 and 2022, step down to 22% in 2023, and finally drop to 10% for commercial projects and no credit for residential projects in 2024.

    This means that if you have been considering installing a solar energy system in the next few years, you have a little more breathing room in terms of time to take advantage of this huge tax credit. As long as construction on your solar project begins on or before December 31, 2022, you can still claim the 26% federal tax credit.

    Why Was It Extended?

    The solar ITC was extended as part of a sweeping 5,593-page, $900 billion COVID-19 relief legislation package that provided direct payments to citizens, assistance for businesses, and funding and access for renewable energy projects. The Solar Energy Industries Association (SEIA) listed an extension of the solar ITC as one of their policy priorities following the 2020 presidential election.

    SEIA CEO Abigail Ross Hopper stated that extending the solar ITC would help build a “stronger, more reliable and more equitable American energy economy,” saying that Congress had the option to make a helpful down payment towards this goal by including the extension in its legislation. She also mentioned that SEIA is working to make the ITC benefits available as a direct payment rather than a tax credit to make the benefit more immediate and augment solar energy growth even more significantly.

    The legislation package also included the Better Energy Storage Technology (BEST) Act, which allocated $1 billion over five years to be spent on federal innovations for research, development, and demonstration of new energy storage technology. Additionally, it included a 30% investment tax credit for offshore wind energy projects and a one-year extension of the existing production tax credit in place for wind power.

    Since 13% of the clean energy workforce has been put out of work this winter due to COVID-19, these tax credit extensions and other pieces of clean energy legislation will help get the affected workers back to work sooner, stimulate the recovery of the clean energy economy, and continue the country’s work to reduce greenhouse gas emissions.

    This means that if you have been considering installing a solar energy system in the next few years, you have a little more breathing room in terms of time to take advantage of this huge tax credit. As long as construction on your solar project begins on or before December 31, 2022, you can still claim the 26% federal tax credit.

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    Adam Walters

    Adam Walters

    Adam has over 8 years of experience working directly with Portland-area solar installers and supporting companies. Over his years, he has worn many hats and gained a holistic understanding of local PNW solar markets.

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