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The Declining Solar Tax Credit: What You Need To Know

The Declining Solar Tax Credit: What You Need To Know

And why you shouldn’t wait

One of the many reasons why the solar industry has seen a massive expansion in the past decade is primarily due to both state and federal incentives. One of the largest and most lucrative is the Solar Investment Tax Credit (ITC).

Under the current regulation, homeowners who go solar are rewarded with a 26% credit, which can be applied on their federal income taxes. This dollar-for-dollar reduction can significantly offset the cost of installation and thus maximize overall savings.

Which is great, right?

Here comes the not so great news.

Time is ticking in order to take full advantage of the ITC before it decreases at the end of the year and then completely expires all together.


2019 marked the last year to receive a 30% tax credit, which had been in place for more than 10 years. In 2020, the ITC was reduced to 26% and is set to decrease another four percent in 2021, before it completely ceases thereafter. The only exception are businesses, which can receive a 10% credit by going solar after the ITC has been phased-out.

**This means the deadlines are: **

26% for systems placed in service after 12/31/2019 and before 01/01/2021 , 22% for systems placed in service after 12/31/2020 and before 01/01/2022

How Does It Work?

When you choose to install a solar system, the federal government helps to compensate you with a tax credit for investing in clean, reliable energy. Simply put, each $1 credit = $1 less you pay in taxes. Currently, the ITC is worth 26%, so if it costs you $10,000 to go solar, you would then receive a $2,600 credit to offset the initial cost.

What Does It Cover?

The federal tax credit is not limited to just the cost of the panels. In fact, it covers a variety of factors including the value of parts, equipment, permits, consultation fees, labor and installation. This incentive can also cover battery storage, if the solar system is used to charge the batteries. The more you spend on your project, the larger your credit – so make sure to keep track of everything!

Who can qualify?

Every customer, who pays Federal income taxes, that either purchases their system outright, or finances, may take advantage of the 26% federal tax credit. Keep in mind, your solar energy system must be installed, fully paid for, and commissioned by your power utility by the end of the year in which you are claiming the credit. Plus, if you can’t use the whole credit in one year, you can use part of it each year for up to five years.

There is an exception for those that choose to lease their system. That’s because if another company leases you the system, they would technically own the system and would be able to claim the ITC.

Please consult your tax professional to find out if you qualify for this tax credit, or refer to IRS Form 5695.

Going solar involves many steps as well as coordination with outside entities for permitting and commissioning, so getting your project started as soon as possible is critical.

And as customers rush to receive the 26% ITC before it decreases, we highly suggest you speak with a Sunny Energy representative in order to take advantage of both state and federal incentives while they last!

Give us a call at 480-257-3283 or visit for a free, no-hassle and virtual consultation.

Still have questions?