How Much is the Federal Tax Credit for Solar Panels? Hint: It’s Changing

By Scott Laskey


Last Updated on January 25, 2021 by
Dec 22

If you’re looking for a way to go green and save money, the solar tax credit is an excellent option. It’s also in a state of flux, though.

While the solar tax credit has existed for several years, new laws threaten to change the solar tax credit for 2018 sooner rather than later.

Here’s what you need to know about the future of the solar tax credit, and why you’ll want to consider installing a solar system for your home sooner rather than later.

What is the Solar Panel Tax Credit?

The tax credit for residential solar panels is a federal policy designed to help spread solar energy power throughout the U.S.

In 2015, the Solar Energy Industries Association, or SEIA, successfully pushed for a multi-year extension of the program, which helped provide a foundational sense of security for both investors and developers.

Here are few fast facts about the tax credit:

  • It is a 30 percent tax credit for residential solar panels
  • It has spearheaded 76 percent compounding growth in annual solar installation since 2006
  • The current inception of the solar tax credit extends through 2021

While the tax credit was extended in 2015, new tax bills, which were just approved by both the House and the Senate, propose significant cuts to the solar investment tax credit, and its associated rebate and incentives.

While there is no way to predict what changes will or will not take effect, the House plan proposes a dramatic reduction in the solar Investment Tax Credit as well as the Production Tax Credits for wind power.

Because of this, property owners who want to install a residential solar system should consider doing it sooner rather than later.

What You Need to Know About the Solar Tax Credit for 2018

Here are a few things to know about the solar tax credit, as it currently stands:

  1. The Credit Applies to Various Systems

The investment tax credit (ITC, for short) applies to various types of solar panel systems. As a general rule, each system must meet the following requirements:

  • It must adhere to all state and local fire and electrical codes
  • It must power the personal residence that you own
  • It must be placed in service between January 1, 2006, and December 31, 2021

Keep in mind that, while the system must power your owned residence, that doesn’t need to be your primary residence. It could also apply to a secondary property that you live in occasionally.

  1. ITC Covers “Qualified Expenditures”

While each solar panel installation is different, you’re allowed to claim the following:

  • Preparing the installation site, including conducting service upgrades to existing panels and replacing a section of the roof to hold the solar array
  • Installing wiring to the solar panel system
  • Assembling and installing the system

If you need help figuring out how much your claim would cover, don’t hesitate to contact a solar installer in your area.

  1. The Credit Reduces Your Tax Liability

When you use the ITC, it will reduce your overall tax liability. Here’s an example of what that might look like in real life:

You pay $20,000 for your home’s solar panel installation. You’re now eligible for a credit of 30 percent, which comes to $6,000. This $6,000 will be deducted from your overall tax liability for the year.

Keep in mind that, while the ITC is a one-time tax credit, you can carry over excess if you can’t use the entire amount when you file your taxes. This applies to people who owe less in taxes than the amount of the credit (e.g. you owe $3,000 in taxes, but your credit is $6,000).

  1. The ITC is set to Decrease in Coming Years

Beginning in 2020, the ITC will start decreasing. On January 1, 2020, the ITC will drop from 30% to 26%. It will fall again to 22% on January 1, 2021.

With that in mind, property owners who want to maximize their ITC deductions should install their solar systems before the end of 2019. Don’t forget the ITC relies on the date your system starts offering service, not the date you install it.

  1. There are Some Limits

The ITC has changed over the years. At the beginning of its life, it included maximum limit caps that it’s since done away with. At one point, it was also supposed to expire at the end of 2016, although it’s since been expanded to a 2021 stop date.

Today, the program can be combined with other perks, like California Self Generation Incentive Program, which can help lower the costs of installing a residential solar power system.

Learn More About the Government Solar Rebate

If you’re wondering about the solar tax credit for 2018, and how impending tax overhaul is likely to change it, Sandbar Solar is here to help. A reliable, trusted source of information you can count on, we’ll help you come up with a plan, and answer any of the questions you have about solar tax rebates.

After more than 14 successful years, Sandbar Solar maintains its position as the most established, locally owned solar company in Santa Cruz. Our solar panel installation projects reduce your energy bills and increase your property’s market value. Solar panels for your home or business also make you an important part of the green solutions that help preserve our planet.

Our Santa Cruz solar services include free estimates, custom design, and expert installation. Our portfolio features thousands of residential and commercial solar panel installations across the region. We’re proud of our reputation for designing and installing the most efficient solar panels for the Central Coast – including Santa Cruz and Monterey counties – as well as San Jose and the Bay Area.


About the Author

Scott is the founder of Sandbar Solar & Electric. With a Bachelor’s Degree in Economics from UC San Diego, Scott has an NABCEP certification, and has lectured on and taught many high-tech construction practices and solar PV technical concepts to education institutions, including Stanford University and state-recognized electrician apprenticeship programs. Scott enjoys sharing his knowledge of the evolving renewable energy space and making a difference in his community.