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The Extended 26% Tax Credit & What It Means For Commercial Solar

Shannon Higgins

February 2021

Indo American-1-1

The federal solar investment tax credit, more simply known as the ITC, has been a significant factor in the large-scale commercial solar adoption over the last decade. Going solar and claiming this lucrative incentive allows businesses to significantly offset investment costs, while dramatically reducing operating expenses. This win-win scenario recently got a significant boost when Congress passed a 2-year extension of the current 26% ITC credit through 2022. Let's take a closer look at what that means for commercial solar. 

The New Tax Credit Ramp Down Schedule

2019 marked the end of the solar ITC's long-standing 30% rate, which had been in place for more than a decade. In 2020, the ITC began a planned ramp down schedule, dropping to 26%, with the next step down to 22% initially scheduled for January 1, 2021. At the last minute, Congress decided to pause the ITC's planned reduction for two years as part of the stimulus package signed into law in December 2020. In the new schedule, the ITC will hold the current 26% rate through 2022. In 2023, the ITC reduces to 22% before dropping to a permanent 10% for commercial projects by January 2024.

So what does all this mean in the short term? The big takeaway is that if your company has been considering solar and care about achieving the maximum ROI through incentives, the extended ITC schedule just gave you a slight breather. 

But don't get too comfy. It is absolutely certain that as we get closer to the next step down, demand and solar installation backlogs will grow. In fact, most solar installers have been reporting longer than usual permit wait times and increasingly packed install schedules since before the ITC first ramp-down step took effect in January of 2020. What's more, commercial solar projects are complicated and take time. So, if you want to lock in these lucrative incentives, don't wait. The sooner you start your commercial solar project, the better.

2021 ITC Schedule_commercial

Updated Safe Harbor Timeline

Naturally, with the 26% tax credit extension, the safe harbor guidelines for new solar projects are also extended by two years. As with the previous schedule, safe harbor provision of the ITC allows companies going solar to preserve the tax credit of the current year by either paying 5% of the total project costs or beginning work of a "significant nature" (usually recommended for larger systems only) before the next scheduled step down. 

With the new extension, the following safe harbor dates should be followed:  

  • For the 26% tax credit, your system must be 5% paid or under construction of a "significant nature" by the end of 2022, and commissioned by the end of 2025.
  • For the 22% tax credit, your system must be 5% paid or under construction of a "significant nature" by the end of 2023, and commissioned by the end of 2025.
  • Systems 5% paid or under construction of a "significant nature" after the above deadlines will qualify for the 10% solar tax credit.Safe Harbor TimelineSafe Harbor Timeline

30% Rate Unaffected For Those Who Safe Harbored Before 2020

For organizations that took advantage of the ITC's safe harbor provision prior to the first scheduled step-down, the time frame for the full 30% ITC benefit has not changed. To qualify for the full 30%, your project needed to have begun construction or was paid to 5% of total cost before January 2020, and it must be placed into service by the end of 2023.

IMPORTANT: Please be aware that these dates are subject to change as future congressional moves impact the ITC. Sometimes blogs have longer lives than legislation. As such, we always recommend that you check with a qualified solar installation company to determine the current status of incentive programs and their critical dates. 

There’s never been more help available to businesses that’d like to start offsetting the rising cost of energy with their own solar power plant. Contact our commercial solar team to find out what’s available for your business. Act now before the 26% ITC and other incentives expire!  

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