Making Sense of the ITC: Extra Benefits for Solar Investments
Switching to solar energy comes with a big incentive in the U.S.—the Investment Tax Credit (ITC). The ITC is a tax credit that helps cover part of the cost of installing solar panels, making it easier and cheaper to invest in renewable energy. And in recent years, the ITC has become even more valuable thanks to “adders,” or extra tax credits for specific types of solar projects. Here’s a simplified look at what the ITC is, what these adders are, and how they can make solar investments even better.
What is the ITC?
The Investment Tax Credit (ITC) is a federal program that gives a 30% tax credit for the cost of installing solar panels. So, if you install a solar system that costs $100,000, the system would be eligible of a $30,000 tax credit, making the switch to solar much more affordable.
What are ITC Adders?
The “adders” are extra bonuses you can add on top of the basic 30% credit, boosting the savings for certain solar projects. The adders are targeted at projects that meet specific goals, like bringing solar power to low-income neighborhoods, using American-made equipment, or creating jobs in areas affected by the decline of coal or other fossil fuels. Here’s a breakdown:
Low-Income Community Adder
What it is: An extra 10% credit for solar projects in low-income neighborhoods.
Why it matters: This makes solar more accessible for communities that typically struggle with higher energy costs.
Low-Income Residential Adder
What it is: A 20% credit for solar on affordable housing or buildings that mainly serve low-income residents.
Why it matters: This gives a big boost to solar projects that directly benefit those who need energy savings the most.
Energy Community Adder
What it is: An additional 10% credit for projects in “energy communities” like former coal towns or areas impacted by heavy fossil fuel use.
Why it matters: This encourages solar investment in areas that need new job opportunities as traditional energy industries shrink.
Domestic Content Adder
What it is: A 10% credit for projects that use mostly American-made solar equipment.
Why it matters: This adder supports U.S. manufacturing and job creation, making the clean energy shift more sustainable at home.
How the Adders Add Up
These adders can be combined, giving a project up to a 50% tax credit! For example, a solar project in a low-income, energy-affected area that uses American-made equipment could get a total of 50% off through the ITC.
This is a great opportunity for solar developers and homeowners alike, especially if they’re working in areas that need affordable energy or local job creation. The adders also align with the goal of making solar more accessible and equitable.
Why These Adders Matter, Especially for Non-Profit Solar Projects
The ITC adders are game-changers across different sectors, but they offer particular advantages for non-profits, thanks to the new “direct pay” option introduced in the Inflation Reduction Act. Unlike traditional businesses, non-profits generally don’t have a tax liability and therefore couldn’t take advantage of the ITC until now. With direct pay, non-profits can receive the ITC as an actual cash payment, which makes solar and other renewable energy projects much more feasible without relying on complex tax equity financing arrangements.
For non-profits, the financial barriers to adopting solar are significantly lowered thanks to the ITC and its adders. Projects located in low-income or energy communities may qualify for bonus credits, such as the 10% Low-Income Community Adder, the 20% Low-Income Residential Building Adder, or the 10% Energy Community Adder. With these adders, up to 70% of a project’s cost can be covered, making solar installations more affordable. This allows non-profits to invest in solar energy with minimal upfront costs, redirecting more funds to their core missions and reducing long-term energy expenses. By leveraging these incentives, non-profits can make sustainable energy a practical, cost-saving choice.
If you are curious to learn more about this for your home, business, or nonprofit give us a call today!