What is the Investment Tax Credit (ITC)?
The ITC, which stands for Investment Tax Credit, is a 30% federal tax credit designed to reward business and homeowners by installing solar energy systems on a residential or commercial property. The tax credit helps reduce or eliminate business or homeowner’s tax liability during tax seasons. For example, a property owner installing a 5kW system covering approximately 500 square feet roof is entitled to receive a 30% federal credit for the total cost of installing the system. This amounts to roughly $5,000 credit in dollar amount. This credit can be used toward the federal tax that the owner would otherwise have to pay out of his own pocket to the IRS. Any unused amount from the credit can be rolled over to succeeding tax periods. The ITC has been instrumental in solar power’s tremendous growth in electricity generation from 2006 – 2013 and the main catalyst to the booming of the industry.
What does this mean to you?
The original legislation on solar tax incentives expired on December 31, 2015. However, earlier that year Former President Barack Obama had strongly advocated that the United States take serious actions on climate change and proposed extensions to energy tax credits indefinitely. The latest legislation change revise that proposal to extend the original tax incentive to year 2022, reviving the stimulant to solar conversion for five more years. Business and home owners have until year 2022 to decide whether they want to invest in solar panels that help generate extra electricity from the sun and be rewarded through federal tax credits. The solar industry will also benefit in more revenue by seeing more property owners converting to solar because of a longer period of tax incentives.
Should I Wait?
While the extension may be giving people more time to think about allocating their current capital to invest in solar, thus taking the urgency to Act Now, it is always better to start early and reap the rewards from solar energy early. An article from Energy Informative breaks down a typical total cost of putting on solar panels on a roof, into installation and operational costs. With the federal tax breaks and numerous incentives that are available from the local governments, depending on the area, net investment on getting solar panels installed can be as much as half of the original upfront cost. After installation with the system already in service, according to the U.S. Department of Energy, a typical system would pay itself back in 5 years or less, which means in 5 years an owner would have a system that generates electricity without him having spent a penny. This is only probable only when the system has been installed in an earlier time and starts generating electricity to offset the rising electricity cost supplied by utility companies.