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Definition
The federal solar Investment Tax Credit (ITC), now codified as the Residential Clean Energy Credit under IRC §48E via the Inflation Reduction Act of 2022, allows homeowners to deduct 30% of their total solar system cost directly from their federal income tax liability — dollar-for-dollar, not just from taxable income. The credit applies to panels, inverters, battery storage, mounting hardware, permits, and installation labor. If the credit exceeds your tax liability in the installation year, the unused portion carries forward to future tax years. Critical: only system owners receive the ITC — consumers who lease solar or sign a Power Purchase Agreement do not receive the credit; it flows to the solar company instead.
Also Known As
ITC
solar ITC
federal solar tax credit
Residential Clean Energy Credit
IRC §48E credit
Used in Context
- On a $25,000 solar installation in Arizona, the 30% ITC reduced the federal tax bill by $7,500 — effectively bringing the net cost to $17,500 before any additional state incentives.
- A homeowner who owed only $4,000 in federal taxes the year of installation could claim $4,000 of their $9,000 ITC in year one and carry the remaining $5,000 forward to subsequent tax years.
- The installer clearly explained that a solar lease would save about $25/month on electric bills — but the family would forfeit the $8,500 ITC that comes only with ownership, making a solar loan economically superior.
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