The Tax Credit
What is the Investment Tax Credit (ITC)?
The investment tax credit, also known as the federal solar tax credit, allows you to deduct 26% 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.
How does the Tax Credit work?
As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. If you sign a lease or PPA with a solar installer, you are not the owner of the system, and thus you cannot receive the tax credit.
How do I claim the investment tax credit?
You claim the investment tax credit for solar when you file your yearly federal tax return. Let your accountant know you’ve gone solar in the past year, or, if you file your own taxes, here are the instructions from the IRS: https://www.irs.gov/pub/
What is the Accelerated Tax Credit?
For businesses only. Depreciate 100% of the cost of your solar array minus 50% of your tax credit in year 1. For example, in 2020 you can depreciate 87% of the cost of your solar array.
Solar Renewable Energy Credits (SRECs)
As a solar energy producer you are entitled to earn and sell certificates representing this renewable energy production — these certificates are called SRECs. We can register your system to be eligible for earning SRECs using the SREC aggregator SREC Trade.
In SREC state markets, the Renewable Portfolio Standard (RPS) requires electricity suppliers to secure a portion of their electricity from solar generators. The SREC program provides a means for Solar Renewable Energy Certificates (SRECs) to be created for every megawatt-hour (1,000 kWh) of solar electricity created. The SREC is sold separately from the electricity and represents the “solar” aspect of the electricity that is produced. The value of an SREC is determined by the market subject to supply and demand constraints. SRECs can be sold to electricity suppliers needing to meet the solar RPS requirement. The market is typically capped by a fine or solar alternative compliance payment (SACP) paid by electricity suppliers for every SREC that falls short of the requirement.
- 1 SREC = 1 MWh of solar electricity
- A 10 kW facility generates around 12 SRECs annually
- SRECs are sold separately from the electricity
- Value is determined by market supply and demand mechanics
- Facilities must be certified by a state to sell SRECs