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Solar Tax Credit: How it Works and How to Benefit

Not everyone can benefit from the Investment Tax Credit (ITC)-Check with your tax professional to better understand the impact to your specific situation

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Congress has voted to extend the solar tax credit for homeowners through 2021.

Homeowners, solar companies, and industry advocates alike were given a big Christmas gift in 2015 when Congress approved the 2016 federal spending bill. The December 18 bill contained a 5-year solar tax credit extension, which makes solar more affordable for all Americans. Wondering how this impacts you? EnergySage has the answers.

The solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value. Thanks to the ITC, the average EnergySage Solar Marketplace shopper saved nearly $9,000 on the cost of going solar in 2015.

The ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. A series of extensions pushed the expiration date back to the end of 2016, but experts believed that an additional five-year extension would bring the solar industry to its full maturity. Thanks to the spending bill that Congress passed in late December 2015, the tax credit is now available to homeowners in some form through 2021. Here are the specifics: Additionally, in previous years, owners of new solar energy systems could not claim the tax credit unless their system was operational. Now, the legislation allows them to claim it as soon as the construction of the system begins, as long as it is operational by December 31, 2023. Additionally, in previous years, owners of new solar energy systems could not claim the tax credit unless their system was operational. Now, the legislation allows them to claim it as soon as the construction of the system begins, as long as it is operational by December 31, 2023.

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