The Investment Tax Credit (ITC) is a dollar-for-dollar credit for expenses invested in renewable energy properties, most notably in solar developments. With rising electricity and household energy costs across the country, the Inflation Reduction Act has made installing solar panels and storage batteries a more attractive investment for many homeowners than it was a couple of years ago. The credit is limited to 30% of the qualifying expenses incurred by the property put into service in a given year. If you install solar energy equipment in your home any time this year and until the end of 2032, you are entitled to a non-refundable credit from your federal income taxes, equivalent to 30 percent of eligible expenses. The Internal Revenue Service (IRS) states in questions 25 and 26 of its Q&A on tax credits that external solar panels or solar panels that are not directly in the taxpayer's home could still qualify for the federal residential solar tax credit under certain conditions.
The ITC is currently a 30 percent federal tax credit that is requested against the tax liability of residential (under Section 25D) and commercial and utility investors (under Section 4) in solar energy properties. The Solar Energy Industries Association (SEIA) also fought for the successful passage of many other important tax measures in the IRA, such as adding energy storage to the ITC, creating tax credits for solar energy manufacturing and ensuring that interconnection costs are a qualifying expense for solar projects of less than 5 MWac. The Solar Energy Investment Tax Credit (ITC) is one of the most important federal policy mechanisms to support solar energy growth in the United States. For instance, an agreement is the formation of a “special purpose entity”, where community members form a company that operates the community solar project and invest in it. The new law also includes an improved energy credit for non-commercial properties, which covers other qualifying efficiency improvements, such as Energy Star-certified exterior windows, Energy Star-certified exterior doors, airtight insulation, improved electrical circuit panels and heat pumps.