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How Does the Federal Solar Tax Credit Work?

Home solar installation in Poughkeepsie, New York

If you’re still on the fence about going solar, this will surely help you reach a decision!

Also known as the Federal Solar Tax Credit, the Solar Investment Tax Credit (ITC) is one of the great benefits you can get by installing solar in your home and/or office.

Aside from saving substantial sums on your energy bill, going solar means that the federal government will help you recoup 26% of your solar system’s cost through the ITC.

However, the federal tax credit won’t be around for long. So, let’s discuss the Solar Investment Tax Credit, how it works, and what it means for you.

What Is the Solar Investment Tax Credit (ITC)?

The Solar Investment Tax Credit gives solar system owners the opportunity to deduct 26% of their system’s cost from their federal income taxes.

In order to incentivize people to make the shift towards solar energy, the federal government in past years gave 30% tax credit to help recoup installation costs quickly. However, the percentage has decreased to 26% in 2020 and will step further down to 22% in 2021.

By 2022, it will step down permanently to a 10% tax credit for businesses, while homeowners will get no discount. This makes 2021 the last year that homeowners can claim any solar tax credit from the federal government.

How Does the Solar Investment Tax Credit Work?

In order for you to avail the ITC, you must:

  • Have tax liability, i.e., the credit cannot be used if you don’t pay any taxes.
  • Be a solar system owner. This means that people leasing solar systems cannot avail the ITC.

Here’s how it works: If you were to install a solar system costing around $30,770 within the year 2020, you would get a tax credit worth around $8,000. This $8,000 will be deducted from the taxes you owe, instead of being paid as cash in hand.

If you can’t readily avail the $8,000 (e.g., if you owe lesser than $8,000 in taxes), you can use the remaining money to recoup future taxes.

More specifically, businesses and farms can use the tax credit to recoup taxes paid during the previous year and then carry forward the remaining balance for up to 20 years until fully availed.

Homeowners, by contrast, can use the remaining tax credit for a period of five years until the full amount is availed.


The Solar Investment Tax Credit is providing you an incredible opportunity to go solar and get monetary benefits in turn. It is a fantastic way to help you lower your cost and see a quicker return on investment by going solar soon.

2020 is the only year during which you can still get a 26% federal solar tax credit. Afterward, it will diminish, and you won’t be able to get the same discount.

Since the federal solar tax credit won’t be around forever, this makes right now the best time to invest in a solar system for your home and/or office.

Make sure you get the most out of your investment by getting guidance from our friendly team at New York State Solar Farm and receive a free consultation in the process!

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As a homeowner, one of the best investments you can make is in solar energy. With energy costs at an all time high and continuing to rise, solar panel systems can save you money from day one. Homes with solar also sell for more given their cost savings & environmental benefits. Solar just makes sense.

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