Renewable energies are getting more competitive every day with new designs, advancements in technology, and government incentives.  

Solar power is getting cheaper and has almost caught up with fossil fuels like coal on an industrial level.  

However, the domestic market isn’t far off and more homeowners are taking advantage of solar power due to the solar investment tax credit (ITC).  

The ITC is a federal tax credit that aims to promote the purchase and use of renewable energy sources like solar power.  

Its target is to bring down the carbon footprint left by fossil fuels and reduce the negative impact on climate change.  

Data shows that almost 75 percent of greenhouse gas emissions that heat the planet are emitted from the use of electricity generated by burning fossil fuels like coal, natural gas, and oil. 

The rising global temperature is alarming and leads to far more consequences than melting glaciers and increasing sea levels.  

It has a severe effect on climate change and can actively change ecosystems and cause a mass extinction of several species. Hence, it was a relief for both climate activists and homeowners when the US government decided to continue doing its part and extended the Solar Investment Tax Credit till 2022.  

With this initiative, the tax credit remains the same instead of getting lowered and can save average homeowners around $6000 for new solar connections.  

History of Solar Investment Credit  

ITC was founded in 2005 and started as the energy policy renewable act of the same year. The act was signed into law by former President George W. Bush and was to expire in 2007.  

However, the tax credit was extremely successful and supported the rapid transition of US households and businesses to renewable sources of energy.  

 Homeowners were quick to make full use of the credit and installed solar power systems in their homes.  

 The success of the federal credit also incentivized Congress to extend its expiry date several times in the past few years.  

 However, the credit limit was reduced over time. The initial reduction was 30 percent and that rate held up till 2019. Since then the credit rate has been on a decline.  

 The credit was reduced to 26 percent in 2019 and was supposed to fall to 22 percent in 2021 and lower down over the years. However, the Trump Administration extended the 26 percent limit till 2022.  

 This encourages the further transition to affordable and renewable sources of energy for homeowners. It also creates a sense of urgency for moving on to solar power since the credit declines to 22 percent in 2023 and it hits zero for residential credit after that year.  

 That means homeowners who are quick to avail themselves the credit would get the most benefit and savings.  

Eligibility for the tax credit  

  • Your Solar PV system must be installed between 2020 to 2022 to avail 26 percent tax credit. So if you’re thinking about installing it now, you should be covered. 
  • The system should be installed in your primary or secondary residence or an offsite community solar project and electricity used shouldn’t exceed the solar system 
  • You need to own the PV system along with the solar panels to be eligible for the tax credit. If you lease the system and panels, then the business that leases it to you would be eligible for the credit.  
  • Rentals aren’t eligible. Only homeowners are.  
  • The PV system should be new.  

How the Solar Tax Credit Works 

Before you opt for the new solar PV system, you should have a high income to have a high tax liability that can take advantage of the tax credit.  

 Remember it is a dollar-for-dollar tax credit. Not a rebate. However, if the credit doesn’t exceed your tax liability significantly, you can rollover the remaining credit on the tax you pay in future years.  

 Moreover, it’s important to buy the solar PV system instead of leasing it to take advantage of the tax credit.  

 Since the tax credit has no ceiling it can be availed by almost anyone. It doesn’t matter if your solar PV system costs you $15,000, $30,000 or $100,000.  

 You will be eligible for a tax credit of 26 percent of the total cost if it is installed within 2022. Moreover, the total cost includes contractor fees and the cost of parts. So, you don’t have to account for it separately.   

 You should also keep all the receipts from the beginning of your solar installation project. As it’s typical with federal tax credits, it requires a paper trail.  

 You are allowed to claim the credit on expenses like solar equipment, solar consulting fees, freight shipping costs, electrician and engineer fees, rented or bought tools, hardware like screws wiring, nails, etc, permitting fees, and more.  

 If your solar project costs a lot of money and you miss out on the credit due to lost bills, the ROI wouldn’t be as lucrative.  

Form 5695 and 1040 

Once you spend your money on your solar project you need to fill the IRS Form 5695 to prove your expenditure to the government and claim the residential credit. If you are a savvy taxpayer who files his or her own taxes, then you should do the following: 


  • Gather all the receipts  
  • Check if you are eligible for the credit 
  • Complete IRS Form 5695 to add your renewable energy credits 
  • Add your renewable energy credit information to the regular form 1040 

 If you hire a tax expert, make sure to inform them about all the expenses and details of your solar project and the solar energy you use.  


The ITC is a great initiative by the US government and has been extended numerous times. However, it will come to a halt at some point while continuing its declining trend with lowering tax credit each year.  

 So, it’s best to take advantage of this tax credit while it is active. There has never been a better time to get on solar. 

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