– The solar investment tax credit, or solar ITC, or federal tax credit for solar panel is a dollar for dollar reduction in any taxes you owe. The federal solar investment tax credit provides a credit equal to a percentage of the total, installed dollar value of a commercial or residential solar system. The percentage of the credit is currently valued at 26%.
Compare this to a tax deduction, which reduces your total taxable income (and may change your tax bracket).
Tax Credit Example: If you have a $100,000 salary and are in the 25% tax bracket, you will have a $25,000 tax liability. A tax credit of $15,000 will reduce the amount of tax you have to pay by $15,000… Meaning you will only pay $10,000 in taxes. Savings = $15,000 in taxes.
Tax Deduction Example: If you have a $100,000 salary and are in the 25% tax bracket, you will have a $25,000 tax liability. A tax deduction of $15,000 means you will only be taxed on $85,000. So, if you’re in the 25% tax bracket, your tax liability will be $21,250. Savings = $3,750 in taxes.
Individuals who have significant tax appetite, such as solar tax equity investors, are eager to invest in solar projects because of the benefits of the solar ITC.