The 26% solar tax credit has been extended until 2023

Updated

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The extension of the federal tax credit will help give the solar industry a much-needed boost after significant losses at the hands of the pandemic. Image source: EverBlue

Finally 2020 has brought us some good news - the federal solar tax credit has received a two-year extension as part of the most recent COVID-19 relief package.

The 5,593-page bill is jam-packed with provisions related to stimulus checks and expanding unemployment funding. But buried deep within the $900 billion dollar legislation are some major wins for clean energy - one of them being the extension of the solar tax credit. 

Previously set to step down at the end of 2020, the 26% tax credit will now be available until 2023. This is great news for the solar industry, which has struggled with impacts of the coronavirus pandemic

Let’s take a closer look at what exactly the solar tax credit extension includes and how it is expected to help the solar industry after a tough year. 

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    What is the solar tax credit extension schedule?

    Since its implementation in 2006, the federal solar tax credit has allowed the solar industry to grow by more than 10,000%. Congress originally extended the tax credit in 2015, but it was set to step down at the end of this year - dropping from 26% to 22%.

    Thanks to the coronavirus relief package, the new incentive step-down schedule is as follows:

    • Extend the 26% federal tax credit for two years
    • Step down the tax credit to 22% on January 1, 2023
    • Step down the tax credit to 10% for commercial installations on January 1, 2024
    • Set the tax credit expiration for residential solar installations to January 1, 2024

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    There have been multiple attempts to extend the solar tax credit, one of which being included in the first round of coronavirus stimulus negotiations. But until now, none of these proposals have passed. 

    How does the solar tax credit help the solar industry?

    Solar installers across all sectors - residential, utility, and commercial - were already worrying about the approaching tax credit step-down before the pandemic hit. Top that with the pandemic, which caused residential solar installations to fall by 23% from the start of 2020 - many installers were unsure if they would survive. 

    The solar tax credit extension will encourage more homeowners to make the switch to solar in 2021 because it will keep solar installation costs low, allowing solar installers to recoup some of what they lost in the first half of 2020. Plus, they won’t have to worry about an impending incentive step-down decreasing their number of potential customers - until 2023, anyway. 

    The extension is especially great news in states where other incentives are coming to a close. 

    In Illinois, for instance, the state-funded Adjustable Block solar program has run out of funding, causing panic among Illinois installers. Now, solar companies in the Prairie State can rest a little easier knowing that, at the very least, the tax credit will last a little longer. 

    What does a solar tax credit extension mean for homeowners?

    The tax credit extension is great news for anyone looking to go solar. Instead of qualifying for a 22% tax credit (as previously expected), homeowners who install solar in the next two years will receive a 26% tax credit. That difference can significantly change how much it will cost to install a solar system

    For example, let’s say you were looking to install a $12,000 solar panel system in 2021. Before the extension, you would have received a 22% tax credit, which would bring the total solar panel installation cost down to about $9,360

    Under the extension, the same system will now earn a 26% tax credit. That decreases the total system cost to just $8,880

    What’s even better is that the cost of solar has dropped significantly over the course of 2020. So, combine the record-low prices with the solar tax credit extension and you have the perfect recipe to make solar the most affordable - and accessible - it has ever been. 

    The solar tax credit extension is good for the whole country - not just the solar industry

    We know that the solar tax credit will encourage home and business owners to install solar, and we know it will help installers stay in business. 

    But it also buys the solar industry a little extra time to figure out how to work with the incoming Biden administration about future federal funding for solar energy projects and finding a path towards a clean energy future. 

    Plus, the extension gives a nice boost to local economies. As solar companies increase the number of their projects, they’ll need to expand their workforce. This means people will be able to get good-paying solar jobs and get back on their feet in a time of record unemployment. 

    As more people get jobs, more people will begin spending money, which is great news for local businesses - even ones that have nothing to do with solar! 

    Even investors are optimistic about the upcoming tax credit extension, as solar stocks have risen substantially over the last two days since the inclusion of the extension was announced. 

    While the coronavirus relief package is far from perfect, the extension of the solar tax credit serves as at least one beam of light. It’s great news for everyone from homeowners to business owners, and even for the economy as a whole.

    Find out how much you can save by switching to solar

    Key takeaways

    • The federal solar tax credit will remain at 26% until January 1, 2023, thanks to a two year extension granted by Congress as a part of their coronavirus relief package.
    • The solar tax credit extension will help the solar industry recover from losses it experienced due to the coronavirus pandemic.
    • Home and business owners will now be eligible for a 26% tax credit for solar panel systems installed between 2021 and 2023, instead of the previously expected 22% tax credit.
    • The extension of the solar tax credit will create new jobs, and thus boost local economies, making it a positive thing for all industries - not just solar.
     - Author of Solar Reviews

    Catherine Lane

    SolarReviews Blog Author

    Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.

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