The solar Investment Tax Credit is a tax incentive that is worth 30% of the total cost of a solar panel system that has been installed on a property. This tax credit is named the Residential Clean Energy Credit and is for qualifying homeowners with newly installed solar panel systems.

The solar ITC is a dollar for dollar reduction in the solar owners tax liability. It is nonrefundable, meaning if their tax liability was lower than the tax credit they received from installing panels they would not receive the remaining balance in the form of a refund. Instead, they would be able to hold on to the remainder of the tax credit and use it towards the following year’s taxes.

For example, lets say John installed solar panels to his property during the 2023 tax year and the total cost of the project was $18,000. 30% of 18,000 is 5,400. So, John would receive a $5,400 tax credit to put towards his 2023 taxes. Now, lets say he only owed $5,000 in taxes that year. This means he still has $400 to used towards the following years taxes.

Homeowners who have a solar lease or PPA agreement do not qualify for this ITC since they do not own the solar panel system. To qualify homeowners must own the panels; meaning they purchased it outright or financed it with a loan.

The other qualification is that the solar panel system must be on and generating power during the tax year that the solar ITC is being applied for. A solar panel system that was installed in May 2023 and began generating power in June 2023, it would be claimed on 2023 taxes. However, a solar panel system that is installed in December 2023 but were not generating power until January 2024 would be claimed on 2024 taxes.

Right now the tax credit is at 30% of the total cost of the solar panel system, but it is scheduled to drop down to 26% in January if 2033 and then down again to 22% in 2034 before it is phased out by 2035. That is unless it is renewed again.