In 2008, solar tax credits were enacted as part of the Emergency Economic Stabilization Act. It included $18 billion in incentives for clean and renewable energy technologies and energy efficiency improvements. This legislation extended the solar Investment Tax Credit (ITC) through December 31, 2016, and it made other modifications to the tax credits.
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A federal investment tax credit for residential and commercial consumers is available for both photovoltaic and solar water heating systems.
Prior to 2009, residential solar installations had a per-project tax credit cap of $2,000. Current legislation provides a solar ITC for residential system owners of 30% of your total system cost with no upper limit.
This 30% rate is available for systems placed in service through December 31, 2019. Through to the end of 2020, it drops to 26%. Then, it drops to 22% through 2021 and finally to 0 by the end of 2021.
This federal tax credit is a one-time credit, but it may be carried forward (and possibly back) if not completely usable in the system installation tax year. Rules regarding carrying forward and backward may vary between residential and commercial tax filers. Consult with a tax professional to stay up to date on the current rules.