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The History of Solar Tax Credits

01.08.2025

A Proven Strategy for More than 40 Years

What Are Solar Tax Credits?

Understanding solar tax credits starts with examining project ownership.

Many homeowners and businesses don’t actually own the solar systems installed on their property. Instead, third-party system owners — usually large banks or corporations — work with a solar contracting company to build and maintain the system. The homeowners or businesses who own the property simply pay these third parties for the electricity the system generates. The third-party owner benefits by receiving solar tax credits and depreciation benefits from the IRS. In fact, the IRS has been offering meaningful tax benefits to solar system owners for more than 40 years.

How Renewable Energy Tax Incentives Have Evolved

The US has a long history of supporting renewable energy infrastructure through the tax code:

1970s

Lawmakers first offered a residential credit to reduce energy consumption and encourage the development and use of alternative energy sources in light of the 1970s energy crisis through the 1978 Energy Tax Act.  The rationale behind the credits was to reduce US consumption of oil and natural gas by encouraging the commercialization of a broader range of energy technologies and resources. The act offered a 15% tax credit for energy conservation measures and as much as 30 percent for renewable energy source property. Tax credits for solar and wind energy property were refundable, meaning individuals without tax liabilities could still receive payments.

Between 1978 and 1980, taxpayers reported spending $3.2 billion on energy conservation measures and $448 million on alternative sources of energy and, consequently, were able to reduce their income tax liability by $562 million. 

1980s

The Crude Oil Windfall Profits Tax Act of 1980 extended tax credits for solar and wind energy property investments through 1985, increased the solar and wind credit to 15%, and made the credits nonrefundable. Additionally, it introduced a 15% business energy investment tax credit.

The Tax Reform Act of 1986, Miscellaneous Revenue Act of 1988 and The Omnibus Budget Reconciliation Act of 1989 each extended the tax credits for solar.

1990s

In 1991, the Tax Extension Act continued the momentum by again extending tax credits for solar.

Then, The Energy Policy Act of 1992 made a 10% business energy tax for solar investments permanent and established the Renewable Energy Production Incentive, which provided incentive payments for electricity generated and sold by renewable energy facilities. It also created a production tax credit (PTC) for wind projects which was bolstered by the Tax Relief Extension Act of 1999.

2000s

The Investment Tax Credit (ITC), established by the Energy Policy Act of 2005, was a game-changer. Offering a 30% tax credit for renewable energy systems, the ITC became one of the most important federal policies supporting solar. Though the 2006 ITC was set to expire multiple times in the years that followed, bipartisan Congressional support repeatedly extended it. Since the solar ITC was established, the industry has grown by more than 10,000% creating a domestic workforce and energy independence that legislators on both sides of the aisle have voted to continue to support.

2020s

Fast-forward to 2022, the Inflation Reduction Act (IRA) provided long-term market certainty and stability by extending the original 30% residential clean energy credit for systems installed between 2023 and 2032. The IRA also introduced flexibility, allowing excess credits to carry back up to three previous years to trigger tax refunds. Much like the original 2006 legislation, the IRA also established a step down schedule for the tax credit between 2032 and 2035, but left open the opportunity for Congress to again extend the ITC based on market conditions.

The IRA also enabled tax credits for energy storage systems for the first time, which turn intermittent renewable energy into reliable power. Batteries paired with solar are becoming popular due to more severe weather, frequent grid outages and policy changes such as California’s NEM 3.0.  With new tax credits and a decade-long extension of the ITC, the IRA is predicted to lead to opportunities for significant equity contributions and more than $565 billion in total new investment over the next decade.

Realizing the Potential of the Tax Code

Understanding the potential for solar asset ownership to positively impact the bottom line, financial institutions including Wells Fargo and Bank of America have made major investments for decades. U.S. companies such as Amazon and Walmart have followed their lead. Recent institutional solar investment milestones include:

Top Corporate Solar Adopters 2024

These companies demonstrate how solar tax credits serve as a dual pathway to energy resilience and savings. And now, private clients have the chance to take advantage of this highly codified transition finance strategy to achieve similar financial benefits.

Request a consultation to learn more.