Federal Income Tax Credit (Investment Tax Credit or ITC)
In 2020, a federal income tax credit is available for 26% of the total cost of purchase and installation (including sales tax) of a solar photovoltaic system provided the solar system owner has sufficient tax liability. This tax credit is a dollar-for-dollar reduction in taxes owed and can be used by either individuals or businesses. Consult your tax adviser to learn how this tax policy affects you.
Individuals use tax form 5695 (see line #1 on the form for “qualified solar electric property costs”). The electricity generated must be used to power a home that you live in at least part of the year. Consult your tax advisor; NWES does not provide tax assistance or advice.
The business that installs, develops, and/or finances a solar project claims the credit using tax form 3468. Businesses also benefit from a modified accelerated depreciation schedule (MACRS) over 5 years, plus a double-counting bonus of half of the federal tax credit (ie half of 26%) of the system cost. If a commercial project is started in one year and finished in another, the owner or developer may benefit from the “commence construction” clause.
There is no upper limit on the value of this tax credit. The credit can be used more than once if you are installing solar in a subsequent year provided you meet all other qualifications.
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