Over the past several months, homeowners across the nation have rushed to purchase and install their residential solar system with the hopes of locking in an extra 4% in solar savings. These savvy homeowners were trying to take advantage of the Federal Investment Tax Credit (ITC). This solar tax credit allowed any homeowner who purchased and installed solar panels for their home in 2020 to unlock a tax credit for 2021 that was worth 26% of the total cost of their solar purchase. Because this credit was due to drop to 22% in 2021, many homeowners jumped on the decision to go solar in October and November. Unfortunately, homeowners who decided to go solar in December were unlikely to get installed before the new year and would lose out on hundreds or even thousands of dollars in tax incentives. However, many homeowners and solar companies celebrated when the spending relief bill was passed on December 21, extending the 26% Solar ITC for another 3 years. To help our recent customers and any potential solar buyers understand the magnitude of this extension, we’ve decided to dedicate a blog post highlighting the history, extension details, and benefits of the new and updated Investment Tax Credit.
History of the ITC
In 2005, the United States Congress passed the Energy Policy Act. With the act being signed into law by President George W. Bush, the United States entered into a new era that emphasized the importance of environmental protection with the investment of millions of dollars into renewable energy sources and projects. One of the many contributions of the act was the first ITC or Solar Investment Tax Credit. This credit allowed homeowners to claim 30% of the cost of their solar as a credit on their federal tax return. At the time, the ITC had a cap of $2,000 in credit value and was set to expire in 2007. Luckily, the ITC was extended and changed under the Cantwell-Ensign Clean Energy Tax Stimulus Act of 2008, removing the $2,000 cap or limit. Without a cap, the solar industry started to see a larger uptick in sales and installations. However, solar was still a pricey commodity that didn’t make much economic sense for most residential homeowners. With time and more extensions to the ITC, solar competition caused a sharp drop in the overall cost of a new solar system across the United States. By combining lower prices and the ITC, the residential solar industry has seen huge amounts of growth in the last five years. The federal government decided that the ITC was one of the main contributors to this growth and extended the credit one last time. As 2020 came to an end, it was expected that the solar tax credit would drop to 22% in 2021 and officially end in 2022. Fortunately for homeowners, the Solar Investment Tax Credit was once again renewed and even made better when the $900 billion federal relief spending bill was passed on December 21, 2020.
Why was the ITC Extended?
With the implications of the coronavirus in 2020, individuals, families, communities, small companies, and even large corporations have been in desperate need of financial relief. The government distributed 2 trillion dollars of relief at the end of March, but that money could only be stretched so far. It seemed as though every month a new stimulus package was in the works and ready to provide Americans and their businesses with much needed economic support. Unfortunately, each month passed by with no actual bills being passed by congress. Just when many had given up hope, a 900-billion-dollar relief spending bill was passed, providing much needed help to businesses and individuals. For years, clean energy leaders and some in congress have been vying to pass bills that would promote renewable energy and extend the length of the ITC with no success. Through determination and years of conversations, these clean energy leaders have helped congress recognize that global warming is a reality and that a change is needed. December’s relief bill not only provided money to individuals and businesses, but it also included clauses that provided new opportunities for the government to invest in renewable energy. Within the bill, there is likely to be $35 billion dedicated to the clean energy sector (with over $4 billion to be invested in solar). This money will also be used to help low-income households install renewable energy systems, fund new clean and sustainable transportation, develop technology to decrease industrial emissions, and back high-risk, high-reward clean energy projects. All in all, experts predict that if all of the funds are used as planned that the United States could trim 25% from its expected 2030 emissions. This portion of the relief package is fantastic news for the solar industry and Americans alike. One of the most exciting developments of the bill is that the ITC or Solar Investment Tax Credit is being extended to keep solar affordable and help the industry’s growth pattern continue on an upward trajectory!
What does the extension of the ITC look like?
Now that we can see that the future of solar and renewable energy is bright, let’s take a look at how December’s relief bill impacted the future of the ITC. Originally, the ITC was set to drop to 22% in 2021 and disappear completely in 2022. This change would remove thousands of dollars in savings and likely deter some portion of Americans from choosing solar after 2021. Luckily, the new bill has made a few adjustments to the old plan. Firstly, the Solar Investment Tax Credit will remain at 26% for 2021 and 2022. When 2023 rolls around, the ITC will drop to 22% (the percentage that it was supposed to be this year), and in 2024 the ITC is projected to disappear. This extension and clean energy funding are game changing for the solar industry. It proves that the government sees both huge economic and environmental benefits from the industry, meaning that solar should see huge growth in the coming years. With that being said, homeowners should expect large improvements to solar technology and efficiency as well as a drop in the overall price of the product! For homeowners worried about the solar ITC disappearing in 2024, don’t forget that credit has been extended several times and could see even more changes as the Biden Administration enters the White House.
What does this mean for homeowners looking into solar?
The extension of the ITC has huge savings implications for homeowners across the nation. If a homeowner were to purchase a $25,000 system this month, they would be eligible to receive a $6,500 (26% of $25,000) federal tax credit. Thus, the homeowner could apply this credit towards their taxes and will end up paying the IRS $6,500 less than a typical year. If the extension of the solar ITC had not occurred, the same homeowner would have only been able to use 22% of the overall cost of their system as a tax credit. This would have resulted in $1,000 dollars less in total savings for the given homeowner (22% of $25,000 is $5,500). If we apply the same example to a homeowner who were to go solar in 2022, we can see that the simple extension allows the homeowner to gain an extra $6,500 dollars in savings on their new solar system. That is a massive difference! With an extra $6,500, a homeowner could pay off a chunk of their solar loan, purchase a used car, pay for an extravagant vacation, or even reinvest that money into a savings account or the stock market. All in all, the ITC extension has provided a wonderful opportunity for homeowners to go solar, which will cause the industry to grow and new developments to be made!
Why Choosing Blue Raven Solar Locks in Your ITC
At Blue Raven Solar, we not only provide our customers with the highest quality panels and the best customer service, but we also exclusively provide solar ownership deals to homeowners. This means that all customers with a taxable income are eligible for the ITC. Most of the major solar companies provide their customers with leasing deals, which mean that the homeowner doesn’t actually own the panels that are installed on their roof nor are the eligible for the ITC. We know that this is a huge disadvantage and can often mean thousands of dollars in lost savings for any homeowner looking to go solar. That is one of the main reasons we have decided to only provide ownership deals. Currently, we are the number one provider of solar ownership deals in the nation. With the extra savings, our customers are happier and more likely to encourage others to invest in solar!
With all of that being said, you probably have realized that there is no better time to go solar than 2021. As we have discussed, government incentives have been extended, but not for long. Thus, every year you wait to go solar means thousands of dollars lost in savings. At Blue Raven Solar, it is our mission to make your solar journey as pain free and simple as possible. That is why we invite all our potential customers and blog readers to use our estimate your savings page. By simply entering your name, email, phone number, and zip code, we will be able to get you connected to one of our solar specialists, who can estimate your savings and help you decide if solar is right for your unique home. Don’t miss out on this free consultation! Click on the link below to see how much you can save!