Will congress extend the 30% solar tax credit beyond 2020?
Written by Andrew Sendy
Updated March 12, 2020
5 minutes read
Consumers have been looking for ways to change their energy output for decades. Whether the goal is to lower bills or reduce individual carbon footprints, solar energy provides an attractive option for many. Unfortunately, the initial cost has for many years created obstacles for most consumers.
This has changed in recent years. Prices are decreasing, and improved technology is creating more cost savings for home energy use. And tax credits on solar power have created a buffer against the initial investment and allowed over 1 million American homeowners to install solar panels on their homes.
The tax credit, though, is currently scheduled to decrease in 2020, and to disappear for individual property installations in 2022. In the past, the government has extended the solar tax credit, but there is no guarantee it will do so again. Wise consumers will look to get a quote now before the financial incentives start to slip away.
What is the Solar Tax Credit?
The solar tax credit began with the Energy Policy Act of 2005. This established a 30% tax credit for solar electric systems, called an Investment Tax Credit (ITC), with a maximum credit of $2,000 and expiration of 2008. The credit was extended in 2008 to last until 2016, and the maximum credit was removed in 2009.
The Consolidated Appropriations Act of 2015 extended the program again, so the 30% tax credit is now available through the end of 2019. Any solar electric power installation or solar water heating system makes you eligible for the credit, so long as installation begins by that date.
The average price of a home solar installation in America is about $15,800 for a 5kW system. A 30% tax credit can thus provide savings of just over $4,720 on those costs—as long as the installation begins while the credit remains at that level.
What is the current schedule for the credit?
The current schedule for the solar tax credit allows for a full 30% tax credit on solar electric or solar water heating installations that are in service by December 31, 2019. In this case, "in service" means the homeowner is occupying the home with installation complete. The system need not be operational at the time to claim the credit.
Unless Congress extends the credit again, the amount of the credit will drop to 26% for systems placed in service in 2020, and 22% for systems placed in service in 2021. After December 31, 2021, the solar tax credit is scheduled to expire for private installations, with only a 10% tax credit for commercial installation remaining.
Will the 30% level be extended?
When Congress debated its tax bill at the end of 2017, there was some concern that the tax credit for solar power would be eliminated. In the final bill, the solar tax credit remained in place but did not extend the tax credit beyond the current schedule. While extensions have occurred at each interval before the credit could expire in the past, there is no guarantee another extension will come.
One reason the tax credit may be allowed to expire is that the costs of installation themselves are decreasing. The total cost of installation has dropped regularly in the last decade, which to some politicians reduces the need for government incentives. This includes a 5% drop in 2015 alone for rooftop systems. The prices have been falling at 4.4% per year worldwide, and Futurism predicts a drop of another 25% by the year 2022.
Beyond the pricing becoming less onerous, lobbying pressures from traditional energy providers has increased in recent years. Private solar power installations save money that would go to local utilities. So as more consumers have invested in solar energy, those utilities have worked to push back against the trend.
With these trends in place, the solar tax credit may still gain an extension in the coming years. Environmental groups and others continue to work with their own lobbying teams to enact policies that support solar power. But with the uncertainty around simply maintaining the credit in the last tax bill, there are no guarantees. The wise approach for those interested in solar energy is to begin researching now and act before the incentives decrease or disappear.
What financial benefits exist beyond the tax credit?
The solar tax credit certainly gives a powerful incentive to install solar power for your home. But it still represents a significant up-front investment. If you are a cost-conscious consumer, this may well give you pause.
Fortunately, the long-term outlook shows great cost savings for you. A solar installation truly represents an investment in not only the environment but your financial future as well. Your electric generation does not cost you anything, so the moment your system starts working, you begin recovering on your investment against the electric costs you incurred through the local utility. The longer you stay in your home, the more of these savings you accumulate.
Further, solar power has become more efficient, so your installation will produce more power, and cover a higher percentage of your energy use than ever before. And if you generate more than you can use, you can even sell power back to the local utility to enhance even more the value of your investment. This financial incentive is known as net metering and is the other main financial incentive that supports solar power in America and makes the installation of solar panels on your home viable. Without net metering, you couldn’t use the credit from your excess solar energy generated during the day to cover your electricity use at night
For most people, the savings you achieve will more than pay back your investment within a decade. Taking advantage of the current solar tax credit will compress that time period considerably. The credit may well be extended beyond 2020, but with no guarantees, the smart decision is to act now rather than gamble on an extension. You can use the solar estimate marketplace to get a tailored estimate of how many solar panels you would need and their likely cost using our solar calculator. This process also gets you live pricing from your local installers if you choose to validate your details.