The federal solar tax credit is a dollar-for-dollar reduction on the taxes that a person or business owner would potentially pay the federal government. The tax credit is based on how much the person or business owner initially invested in the solar system.
Before 2016, the commercial and residential credits were equal to 30% of the system’s basis. But after December 2016, the commercial credit dropped to 10%, where it currently stands. The residential credit dropped to 26% in 2020 and is expected to drop to 22% in 2021, according to the Solar Energy Industries Association (SEIA). That’s bad news, but it gets worse: Starting in 2022, the federal solar tax credit is expected to expire unless Congress approves a renewal.
There’s a silver lining, though. If you haven’t invested in solar power yet, there’s still time to take advantage of the solar investment tax credit and save 10% as a business owner. Current solar companies that have made the switch are benefiting from tremendous cost savings and maximizing their ROI within a few months after their solar installation.