SunPower : Congress Extends Tax Credit That Can Offset the Cost of Solar

Congress recently provided a big ray of sunshine to homeowners who plan to start using solar energy. Lawmakers extended the deadline for the federal solar investment tax credit (ITC), one of the most important policy drivers for solar power in the United States. The ITC has enabled owners of residential, commercial and utility-scale solar projects to receive a tax credit on a percentage of the total installed cost of their solar system, making this clean energy approach much more economical.

In December 2020, Congress approved an economic stimulus package designed in part to provide COVID-19 relief. That package included a two-year extension of the federal solar investment tax credit. The ITC for solar customers was originally scheduled to drop from 26% in 2020 to 22% in 2021 and then be phased out all together in 2022.

Thanks to the recent extension, the tax credit will now stay at 26% for two more years. That means in 2021 and 2022, owners of new SunPower solar systems can deduct 26 percent of the cost of their systems from their taxes. In 2023, they can deduct 22 percent and - unless it's renewed again - the credit will end in 2024.

This extension comes as a welcome relief for solar customers, SunPower, and SunPower's top-notch network of solar installers. After setbacks to the solar industry in 2020 due to COVID-19, the extension of the tax credits will help ensure the continued resilience of clean, renewable energy throughout the phase of the global pandemic.

To take full advantage of the ITC, it is good to know the details surrounding how it works, including its benefits to homeowners. Let's take a closer look with these five questions:

How does a tax credit work?

It's a direct reduction in the income tax you owe. Keep in mind that a tax credit is not a tax rebate. A rebate pays you back, but a credit offsets the balance of the taxes you owe. So if you have a $2,000 tax bill, you can claim a $2,000 credit - and no more. Fortunately, if you don't have a high enough tax bill to claim the entire credit in one year, you can rollover the remaining amount to future years as long as the tax credit is in effect.

Does this apply to anyone whose house uses solar energy?

It only applies directly to those who own their solar installation. People who lease solar equipment or use a solar power purchase agreement (PPA) usually cannot receive the tax credit. However, some lease and PPA agreements do provide for exceptions. Also, people using a loan to access solar may be eligible. And those who own a solar installation indirectly may benefit. For instance, condominium owners may be able to receive the tax credit if they contribute to the cost of a solar installation.

What expenses can be considered when calculating the tax credit?

The tax credit covers the costs on a range of equipment, including solar panels, wiring, inverters, mounting equipment, and energy storage units. The tax credit also covers many labor costs.

How do I claim the ITC?

You claim it on your annual federal tax return. Consult with your accountant or use this guide as you fill out your tax forms.

Do states provide tax incentives for installing solar?

Yes, many do. Find out more here. Federal tax credits usually have no impact on state tax incentives, and the reverse is true well.

To find out how you can save money and help the environment with a solar installation for your home, set up an online appointment with one of our SunPower solar experts.