Investment Tax Credit (ITC)
The federal solar Investment Tax Credit (ITC) is a US federal income tax credit that allows individuals and businesses to deduct a percentage of the cost of installing a solar energy system from their federal taxes. The ITC is one of the most important financial incentives driving solar adoption in the United States.
Under the Inflation Reduction Act of 2022, the ITC was extended and set at:
- 30% credit for systems placed in service from 2022 through 2032
- 26% for systems placed in service in 2033
- 22% for systems placed in service in 2034
- Expires for residential systems in 2035 (commercial may continue as Production Tax Credit)
How the ITC Works
The ITC is a tax credit, not a deduction. A tax credit directly reduces your tax liability dollar-for-dollar. For a homeowner with a $30,000 solar system:
- 30% ITC = $9,000 tax credit
- If their federal tax liability is $15,000, their tax bill drops to $6,000
The ITC can be carried forward to future tax years if the credit exceeds the current year's tax liability, which is common for residential customers.
ITC Eligibility
Residential: Available to homeowners who own (not lease or PPA) a solar system and owe federal income taxes. The system must be new, not previously used. Applies to solar panels, inverters, balance of system, installation labor, and battery storage (if co-located with solar).
Commercial and utility-scale: Available to businesses that own solar systems. Monetized through tax equity financing partnerships for large projects.
Stacking with State Incentives
The federal ITC can be combined with state tax credits, rebates, and utility incentives. California's Self-Generation Incentive Program (SGIP), Massachusetts Solar Loan Program, New York's NY-Sun program, and others can stack with the federal ITC for even greater total incentive packages.