As demand for renewable energy accelerates, the Solar Investment Tax Credit (ITC) and Clean Electricity Investment Credit (CEIC) continue to serve as a cornerstone incentive for reducing the cost of solar energy systems. Understanding how credit works—and how recent legislation like the One Big Beautiful Bill (OBBB) may impact it—is essential for businesses, homeowners, and investors considering a move to solar.
What Is Solar Tax Credit (ITC/CEIC)?
The Solar Investment Tax Credit (ITC/CEIC) is a federal income tax credit available to businesses that install qualifying solar energy systems. Originally enacted under the Energy Policy Act of 2005, the ITC has driven massive growth in U.S. solar adoption. The Inflation Reduction Act (IRA) of 2022 extended and enhanced the credit by transitioning to CEIC for projects be ginning construction after 2025 and gradually phasedown beginning in 2034 or second year after emissions targets are reached (whichever is later). The Recent Passed One Big Beautiful Bill (OBBB) Introduced many changes to solar credit eligibility as discussed below.
How the ITC Works
The Solar Investment Credit, also known as ITC, is a dollar-for-dollar reduction of the federal income tax you owe. Here’s how it works:
- Eligible Properties: Commercial, Industrial, and Utility-scale projects.
- Credit Rate: Section 48 ITC remains at 6% base credit increases up to 30% base credit if the project meets PWA requirements or 1MW exception that begins construction before 12/31/2024. All projects beginning construction in 2025 are transitioned to Section 48E CEIC.
- Eligibility: Taxpayers must own the system; leased systems generally don’t qualify.
- Important deadlines: Projects that begin construction by July 4, 2026, the placed-in-service (PIS) deadline for meeting the continuity safe harbor is four calendar years after the calendar year in which construction began. For projects that begin construction after July 4, 2026, the PIS deadline is December 31, 2027. The Bill introduces FEOC restrictions for projects that begin construction after December 31, 2025.
What Costs Qualify?
Qualified expenses under the ITC typically include:
- Solar panels and inverters
- Installation and labor costs
- Energy storage systems (primarily solar-charged)
- Permitting, inspection, and interconnection fees
- Sales tax and developer fees (for commercial installs)
Take the Next Step
The solar tax credit remains a powerful tool for reducing the upfront cost of clean energy projects—and with the added provisions of the OBBB, now is the time to act. Proactive steps today can help lock in valuable incentives and keep your solar projects compliant and profitable under the new rules. Source Advisors helps businesses optimize federal and state energy tax credits through expert guidance and strategic tax planning. Contact us today to learn how we can support your solar investment.
