Federal Solar Income Tax Credit Gets 5-Year Extension

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Congress has passed a five-year extension to the federal Solar Income Tax Credit (ITC), which allows homeowners and businesses to claim a significant income tax credit based on the cost of their solar energy systems.

The 30 percent tax credit was scheduled to expire at the end of 2016 and will now extend through 2019. In 2020, the credit will drop to 26 percent and then to 22 percent in 2021. Non-residential solar systems will continue to qualify for a 10 percent tax credit indefinitely, even after incentives run out for residential systems.

A tax credit is a dollar-for-dollar reduction of the federal income tax you owe.

Renewable energy activists urged Congress to pass the extension, which President Barack Obama signed Friday as part of an overall spending bill, to give the industry more time to mature and to allow for advances and investments in technology.

Analysts believe the extension will significantly boost the adoption of renewable energy for both residential and commercial sectors. Bloomberg New Energy Finance (BNEF) estimates that 20 gigawatts will be added, more than every solar panel installed prior to 2015.

The extension comes on the heels of the historic 2015 Paris Climate Conference where delegates from 195 countries approved a global agreement on halting climate change.

Wind energy also receive an extension to its tax credits.

The new language in the law clarifies that the tax credit for homeowners is based on the placed date of service, which is when the system passes final inspection. Going forward for businesses and investors, it will be based on the year the project begins construction.