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What’s Happening to the Solar Tax Credit in 2021?
February 2, 2021
There are more and more reasons to go solar or geothermal with your Sacramento, Elk Grove, or Rocklin home—you’ll be lowering (or even completely eliminating) your electricity bills, powering your home with clean, renewable energy, and even helping to gain energy independence and avoid planned power outages from your utility company (more on that later).
The biggest hurdle to going solar is the upfront installation costs, which is why solar rebates and incentives have been crucial for so many home and business owners looking to upgrade to solar energy.
However, the largest and most important solar and renewable energy incentive, the federal investment tax credit, has been in flux recently, adding confusion for homeowners. Here’s what you need to know about the solar tax credit in 2021 (which also applies to geothermal heat pumps), and why you’ll benefit from higher residential solar installation savings if you act soon.
What Is the Federal Solar Tax Credit?
If you’re unfamiliar with the federal solar tax credit, officially called the Federal Investment Tax Credit (ITC) or Energy Efficiency Property Tax Credit, here’s an in-depth explanation about how the tax credit works and how to claim it on your taxes.
For the purposes of this discussion, we’ll keep it simple: the federal solar tax credit allows you to take a tax credit on your federal taxes due equal to 26% of your total solar installation costs or geothermal heat pump installation costs, for any residential or commercial installations in 2021.
For residential solar installation the solar array needs to be installed and in service (turned on) before December 31, 2021. For commercial projects, construction must have commenced before the end of the year to qualify for that year’s tax credit. As an additional benefit, you can also roll over any remaining balance into the next tax year.
26% off your solar panels or geothermal system means significant savings—most homeowners would qualify for at least several thousand dollars back, which can make a huge difference in whether renewable energy is affordable for your home or business.
Did the Federal Solar Tax Credit Get Extended?
The federal solar tax credit for residential solar energy systems was scheduled to end soon—at the end of 2021—and average total solar installation costs would have jumped, probably by a few grand, starting next year.
However, at the final hour the ITC was extended by Congress and signed into law, so you now have a little more time to save on solar installation or geothermal installation! With the new schedule, home and business owners will still be able to qualify for the higher 26% rate for all of 2021 and 2022, and the ITC will only start to step down in 2023. Here is the full new federal tax credit schedule:
2024: Eliminated for residential, permanent 10% for commercial
If you’re on the fence about solar energy or renewable energy, but are thinking you might be buying solar panels for your California home or business over the next few years, there won’t be a time when you’ll save more than 2021—act now for guaranteed savings!
An Added Benefit to Savings: Adding Battery Backup for Your Solar Panels
Along with the rise in interest for solar energy, solar battery backup has become a valuable add-on for many California homeowners, particularly in light of recent PSPSs (public safety power shutoffs) from utility companies. Solar batteries for your home come with a whole host of benefits, including:
Using free renewable energy at night or during cloudy days
Avoiding peak demand charging and high electricity bills
Keeping the lights on during power outages
Not only do solar batteries qualify for the federal solar tax credit, but there are other California solar battery incentives as well that can help lower the cost, including the SGIP (Self-Generation Incentive Program), which can help you qualify for additional savings, depending on the size of the battery, your income or if you live in an HFTD, or High Fire-Threat District.