How do solar tax incentives work? When you install a solar system, 26% of your total project costs (including equipment, permitting and installation) can be claimed as a credit on your federal tax return. But hurry, the government's federal income tax credit (also known as the investment tax credit (ITC)) won't last much longer and is becoming less beneficial as it expires! The 26% tax credit applies as long as the solar energy system is installed by December 31, 2022. Starting in 2023, the value of the tax credit will step down to 22% with the current federal solar tax credit extension set to expire in 2024. The ITC applies to both residential and commercial systems, and there is no cap on its value.