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Why 2022 Is Your Last Chance to Get a 26% Return on Your Solar Kit

Shutterstock Photo License - By Slavun



There are many steps that you need to take to embrace a sustainable lifestyle in 2022. One of the most significant steps you can take is investing in renewable energy. Solar energy is among the most popular forms of renewable energy, which is growing by the day.

The U.S. solar industry has shown tremendous growth over the past decade, and it’s clear it’ll continue to expand in the upcoming years. In addition to the mass acceptance of solar energy, the federal solar tax credit played an essential role in its growth.

The solar tax credit or the Investment Tax Credit (ITC) serves as a powerful incentive for residential and commercial owners to transition to a renewable energy system.

However, unless Congress makes a swift decision to renew the policy, it’s set to expire in 2024. By installing qualifying solar panels now, you can still take advantage of federal, state and local benefits that can put money back in your pocket. This is one of the many financial benefits of investing in solar energy.

What Is the Federal Solar Tax Credit?

Since the federal government enacted the ITC in 2006, the U.S. solar industry has shown tremendous growth. It has a hockey stick trajectory and shows little sign of slowing down with a 31 percent solar deployment projection by 2025. This is welcoming news as it continues to create thousands of jobs and billions of dollars for the U.S. economy.

Installing qualifying solar panel kits presents an opportunity for residential and commercial owners to lower their tax bills. For residential homeowners, the credit applies to personal income taxes.

Assume you have $10,000 in solar photovoltaic (PV) system costs. That means you may receive $2,600 in credit that you would otherwise have to pay to the federal government. Without going into too much detail, most qualified costs include equipment, installation, fees and sales tax on eligible expenses.

Currently, installations of PV systems in 2021 and 2022 are eligible for a 26 percent tax credit. However, that amount significantly decreases to 22 percent in 2023 and expires in 2024.

In order to claim the credit, you must have a solar PV system in service before the last day of the year you want to claim. For example, to claim the current 26 percent tax credit, you must have your system in place by Dec. 31, 2021, or Dec. 31, 2022.

Decreasing Solar Tax Credit

Time is running out for homeowners to claim significant tax credits, if at all. The last time the ITC was renewed in 2019, it suffered a substantial drop from 30 percent to 26. If Congress were to extend the policy before it expires, it stands to reason to assume a similar drop.

This upcoming year is the last for many homeowners to claim the highest tax credit for solar energy systems there will ever be for the foreseeable future.

Until Dec. 31, 2022, homeowners can claim up to 26 percent. However, that amount reduces to 22 percent in 2023 and zero on Jan. 1, 2024. The four percent drop in one year is significant. You end up losing between a few hundred to a few thousand dollars in tax credit.

It’s important to remember that you qualify for the tax credits for the year the system is installed and generates electricity. When working with your local solar provider, it’s best to get it installed earlier in the year to ensure it gets completed before 2023 and the reduced credit amount.


In addition to the solar system being installed and in use, you must also fulfill several other requirements like ownership status, system use location and property type.

That means you must own the system outright, use it within the U.S. and you can’t claim the credit for full-time rental properties. It only applies to primary and secondary residences and off-site community solar projects. Additionally, the system must be new or used for the very first time.

State and Local Benefits

The rapidly declining federal solar tax credit isn’t the only reason to start your solar installation as soon as possible. There are currently many states that offer incentives and benefits.

Some states include tax credits, a solar panel rebate and solar renewable energy certificates. Generally, the incentives will vary by state, some offering more than others.

The rebates from the state typically won’t reduce your federal tax credit. This means if you had $15,000 in costs and received a state rebate of $1,000, your federal tax credit would remain the same at $15,000.

Similarly, the federal tax credit typically won’t reduce your state credit. It’s good to note that state tax credit can increase your federal taxable income. Ultimately, the state tax credit is taxed at a federal level.

You may also receive renewable energy certificates on a state and local level. Once you install and register your system with the state, they track the energy production and periodically offer the certificates.

These can then be sold to your local utility for cash or some other incentive as payment. While this payment won’t reduce your federal tax credit, it’s generally counted towards your taxable income.

Another utility benefit is performance-based rebates for the power generated by your system. Some utility companies may offer a one-time subsidy, while others may provide rebates on your monthly bill.

Getting the Most for Your Solar Energy System

Although the cost to install and maintain solar energy systems has been steadily declining over the years, so have the financial incentives that come with installing them now.

Even if Congress were to renew the policy before it expires, 2022 is the last chance you’ll ever have at claiming a 26 percent federal solar tax credit. The last thing you want is to begin the installation process in December, only to have it finish on Jan. 1, 2023 and get the reduced 22 percent credit.

To find out how much you can save today, check out your state’s solar panel rebate and speak with your local solar provider.