Solar’s Federal Investment Tax Credit: How It Works & What You Need To Know

When going solar, one major factor that affects affordability is the Federal Investment Tax Credit, also known as the ITC. This tax incentive allows you to claim 30% of your solar installation costs as a credit on your taxes. For Texas homeowners, the ITC can save you thousands of dollars on the net price of a rooftop solar system. However, despite the ITC being one of the best incentives for Texans that want to go solar, many residents don’t know much about it. With that being said, let’s take a deeper look at the investment tax credit so you can save as much money as possible when going solar.

The ITC has been a key driver of solar adoption since it was enacted in 2006. By offsetting 30% of your capital costs, this federal credit provides HUGE savings that improve solar’s return on investment. In other words, homeowners can make their money back on their solar investment much faster because of the tax credit that the ITC provides. This incentive has helped grow the U.S. solar industry over 200 times, while steadily driving down prices. Good news for homeowners!

As a residential solar company serving Texas, we’ve seen firsthand how instrumental the ITC is for homeowners deciding to make the switch to solar power. With the tax credit, more Texas families can affordably achieve power independence and hedge against rising electricity rates. With the ITC, a solar installation becomes an even more attractive investment.

The ITC gives homeowners a great opportunity to invest in their home and its future resale value. Installing rooftop solar boosts the value of your property because instead of renting energy from your utility company each month, you are investing money into an owned asset that produces electricity for you. Plus, when you sell, the panels stay with the home, allowing the next residents to benefit. Because of this, installing solar panels will skyrocket your home’s value, and let’s be honest, who doesn’t want that? 

But how exactly do you capitalize on the ITC as a Texas homeowner? Sure, the benefits of going solar are great–but if you don’t know how to access them, then they’re meaningless. Let’s say you are ready to invest in a solar system for your home; The ITC allows eligible homeowners to claim 30% of the total installation price as a tax credit on your federal taxes. For example: a solar system costing $15,000, could be eligible for up to $4,500 back from Uncle Sam. If you are investing in a larger renewable power system for your home, let’s say $70,000 total system cost, then your 30% investment tax credit could be up to $21,000! Here are some other examples:

• Pay upfront in cash for a $50,000 solar system and you could qualify for a $15,000 tax credit
• Finance a $60,000 solar system with battery backup power and you could qualify for a $18,000 tax credit
• Invest into an off-grid solar and battery backup system that is $80,000 and you could qualify for a $24,00 tax credit
• As you can see, the tax credit is a fixed percentage (30%) of the total cost

Claiming your tax credit is as simple as filling out an additional 1 page form (Form 5695) and including it with your tax fillings. Almost all accountants know how to handle it, and the form is compatible with online tax filing softwares. Yes, it’s that easy! 

Alternatively, you can lease a solar system or enter a power purchase agreement (PPA) in which case you may be able to indirectly benefit from the ITC. In cases where you choose to lease solar or go with a PPA, the solar company owns the equipment and the homeowner is not eligible to receive the tax credit. However, some solar companies may choose to pass down some of the benefits from the ITC into your system cost. We recommend purchasing your solar outright so you can reap the full benefits, but a PPA/lease may still be a good alternative for some homeowners.

While the residential ITC is guaranteed at 30% through 2034, the commercial credit for businesses and solar farms drops annually. So, if you are a commercial business owner and have been thinking about going solar, now is the optimal time to benefit from the full incentive amount!

Our team at North Texas Solar is full of experts who can maximize your ITC savings and provide complete guidance on utilizing this valuable tax credit. Contact us to learn more about how the ITC works and to start your journey to power independence!