What You Need to Know on the Investment Tax Credit for Solar in 2025
With a new administration now in office as of January 2025, there has been uncertainty surrounding the sustainability economy and its stakeholders. In the past few months, some of the most common questions we’ve received from current and prospective clients are about the Federal Tax Credit. So, we decided to answer all of these questions, to the best of our knowledge and put the answers in one place for ease of access. If you have questions about the Federal Tax Credit for Solar or have interest in the possibility of solar for your home or business, reach out today!
What Is the Current Standing of the Investment Tax Credit?
As highlighted in a previous blog post, the Investment Tax Credit was increased and extended via the passing of the Inflation Reduction Act in 2022. The Inflation Reduction Act was arguably the most significant environmental bill in United States’ history, with a 370 billion dollar investment commitment to clean energy and climate solutions and a goal of cutting US Carbon Emissions by 40% by 2030.
The act also impacted the Investment Tax Credit for alternative energy projects, increasing the credit from 26% to 30% while also extending the credit’s lifespan to 2033. As of now, the credit is slated to remain at 30% until 2033 when it will decrease down to 26%, then to 22% in 2034 and to 0% for residential properties in 2035.
Until we get more information on the standing of the Tax Credit, this is our most up to date and concrete information. We will inform our Northstone Solar community on any potential changes as soon as we hear of them.
Should there be Concern Over the Tax Credit’s Longevity?
As mentioned above, there is some overall uncertainty about whether or not the current administration will attempt to get rid of the Investment Tax Credit. While we have no insider information, there are some reasons to believe that the credit will stick around. The first reason being that the Tax Credit has lasted through a number of administrations, including a Trump presidency.
The original Investment Tax Credit was enacted back in 1978, and initially covered 10% of the total cost of alternative energy projects. However, the current iteration of the Investment Tax Credit was created in 2005 via the Energy Policy Act.
Over the past two decades, the Investment Tax Credit has been extended numerous times by various administrations. Most notably, the Emergency Economic Stabilization Act extended the ITC for 8 years in 2008. it is important to note that the ITC survived a previous Trump presidency. In fact, a delay of the step-down of the credit was passed by Congress in 2020 while Trump was in office.
Still, we have no concrete information stating that the current administration will not go after the Tax Credit. The simplest advice we can offer potential clients looking to take advantage of the credit is to act quickly. One thing most people in the industry feel confident saying is that there will be changes and updates to the Inflation Reduction Act. However, it would be legally difficult for these changes to be retroactive to 1/1/2025. The reality is, it is possible that 2025 might be our last year with solar subsidies at their current rate.
Who is Eligible for the Investment Tax Credit?
The short answer is that YOU are likely eligible for the tax credit! As of right now, home owners, businesses, and nonprofits/tax-exempt-entities are all eligible to capitalize off of the changes made in the Inflation Reduction Act!
Homeowners receive the full 30% of the Investment Tax Credit as long as they live in the home for some part of the year. This means that homeowners are eligible to receive the Investment Tax Credit for second homes and other non-primary residences. However, it is important to note that if you rent your property out, you will not qualify for the residential tax credit, but could qualify for the commercial credit, which is an equal incentive.
Businesses are eligible to receive the Investment Tax Credit as long as they own the building they are installing on and own the system outright.
With the passing of the Inflation Reduction Act, the Investment Tax Credit expanded to allow nonprofits with no tax liability to apply for direct pay reimbursement equal to the value of the tax credit. This means that if you are a nonprofit or other tax-exempt entities you can receive the credit in the form of a direct pay reimbursement.
How Do I Receive the Investment Tax Credit?
Once your system has been installed and commissioned, you can claim the credit for that tax year. For homeowners, you must file form 5695, Residential Energy Credits when you file your tax return in order to claim the credit. Visit the IRS page on clean energy credits for additional information. The process is the same for business owners, but they must file IRS Form 3468 with their annual tax return.
The process for nonprofits and other tax exempt entities is a little bit more complicated, but the process requires submitting pre-filing registration with the IRS prior to filing your tax return and then filling out IRS Form 3800 when you file. If you are a nonprofit or tax exempt entity looking to install solar, we advise speaking with your tax professional regarding this process.
Sources:
https://www.cleanegroup.org/what-nonprofits-need-to-know-about-the-investment-tax-credit/