How Does the Solar Investment Tax Credit Work?

Enacted in 2006, the Solar Incentive Tax Credit (ITC) has driven unprecedented growth in the US solar industry, increasing the total installed capacity 35-fold since 2008.

While the ITC is a powerful incentive, there remains some confusion around the details of the program and the extent of the savings it offers.

With the program set to wind down before closing altogether by 2022, solar contractors can use the ITC to incentivize new customers while also creating urgency during the sales process.

But to maximize the benefits, you must first ask, how does the solar investment tax credit work? This knowledge can then be used to enhance your promotional material, fine-tune your sales process, and convert leads into a solid installation pipeline.

What Is the ITC? How Does It Work?

The ITC is a national solar incentive that allows customers to claim a 30% tax deduction from the total cost of their solar system.

The deduction applies to the total system cost, inclusive of all equipment, labor, and permits. As an example, a system with a total price of $20,000 is eligible for a $6,000 (30%) tax deduction. Using IRS form 5695, customers can lodge and claim the credit on their next tax return.

For commercial and utility-scale systems, the same amount is applicable, but the tax deduction can be claimed directly by the installer or financier of the PV system.

The Closure of the ITC Program

As we covered in our recent article, the ITC program will phase out over the next few years before closing at the end of 2021.

The current tax credit sits at 30%, which will reduce to 26% in 2020, and then down to 22% in 2021 for the final year of the program. From 2022, commercial and utility systems will still be eligible for a 10% tax credit, but the program will close to residential customers.

It’s important to note that the applicable tax credit is based on when the solar installation commences – not when it is completed. Under these rules, a system that begins installation in 2019 will still be eligible for the full 30% tax credit, even if it is not completed until 2020.

Using the ITC to Drive Solar Sales

There’s no doubt that the ITC program is a powerful incentive to attract and secure customers – provided they’re aware of what’s on offer.

Extracting maximum benefit from the tax incentives can be simplified into three stages: awareness, education, and action.

  1. Awareness is the crucial first step in attracting new clients or re-igniting the interest of old quotes. Many customers are not fully aware of the savings on offer, or that the tax credit amount will be reduced over the coming years.
  2. Education is vital throughout the sales and quote process to inform clients about the details of the program and the timelines at play. This knowledge can also play a valuable role in scaling-up system sizes, as the tax incentives increase with the size of the system.
  3. Action is the crucial final step, using the ITC along with your unique value proposition to secure new orders. As the tax credit amount reduces at the end of each year, it has created an element of urgency and encourages prospective clients to bring their decision process forward.

The ITC, combined with high-level equipment and service, allows you to present a strong product offering to your customers – and build your installation pipeline in the process.

How Can I Effectively Promote the ITC?

With thousands of dollars in tax incentives available, you can maximize your solar sales by utilizing the following methods:

  • Promoting the ITC in external marketing – such as print, internet, radio, and television.
  • Incorporating the ITC into all social media channels.
  • Creating dedicated website and blog content to promote the ITC.
  • Using mail, email, and telephone marketing to attract new customers and follow-up old leads.
  • Promoting the ITC across business signage, showrooms, and trade shows.
  • Making the ITC a leading aspect of your solar material, consultations, and written quotes.
  • Create YouTube content discussing and explaining the ITC, positioning your business as a market leader in the process.

The final months of each year will bring increased demand as customers seek to lock in the ITC before the annual reduction. You should prepare your business in advance, ensuring you have the capacity to meet demand – and can make the most of every new sales opportunity.

In addition to increased consumer interest, the ITC also enables your business to leverage external incentives rather than offering your own discounts. This helps you to maintain higher margins and focus more on the quality of your products and services rather than compete on price.

Combining the ITC With a Reliable Supply Partner

By maximizing the tax credits and working with a professional supply partner, your business has the tools it needs to exceed sales targets and strengthen your market position. Solerus Energy is a national solar distributor offering a comprehensive range of equipment and services to help solar contractors succeed in a competitive marketplace.

Solerus is a trusted solar energy equipment supplier, empowering contractors to develop agile solutions for commercial and residential clients. We provide a range of best-in-class solar products that are backed by an industry-leading 25-year warranty, designed to provide you with unparalleled peace of mind.

To learn more about government solar incentives and the equipment you’ll need to have happy customers at a price that you’ll love, feel free to contact one of our knowledgeable specialists today!