What are the Different Types of Investment Tax Credit?

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  • Written By: Florence J. Tipton
  • Edited By: John Allen
  • Last Modified Date: 06 September 2019
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An investment tax credit (ITC) is generally an incentive for individuals and companies that make certain types of investments. To encourage participation in areas that may boost the economy, governments may offer an investment tax credit to reduce the tax liability of individuals and businesses. The different types of energy credits generally include various sources, such as solar and other forms of renewable energy. A business ITC is usually restricted to companies that make investments in building construction or hiring new employees.

Generally, to spur growth in a particular industry or economy, a government subsidizes the investments that an individual or company willingly makes. These subsidies, or tax credits, are usually for projects that might not otherwise take place. Some of the common investment tax credits might include energy — particularly solar — and business.

Energy projects may qualify for investment tax credits. These kinds of tax credits typically apply when taxpayers use energy-efficient material in a new construction project or upgrade to an existing building. The overall expectation is that investing in these energy sources may help to reduce the cost of energy consumption in a private residence or business. Some energy projects include heating and cooling systems, insulation of buildings and houses, and, installing energy-efficient windows.


A solar investment tax credit also covers energy material, but specifically for solar-type investments. The various systems eligible for the credit may vary, but they typically include solar heating and lighting systems. A government usually grants solar credits to an individual or company based on a percentage of total expenses for solar equipment.

A company may qualify for investment credits when it reinvests capital to spur economic growth or hire new employees. For this type of credit, a government may offer incentives that encourage investing in the local economy. Tax incentives usually correlate to the economic needs within a community. For example, if construction normally drives a local economy, companies may receive a tax credit by building a new office in the area.

Each government sets the qualifications to receive the credits. The type of investment tax credit may depend on the specific qualifications for the individual or company. In some cases, this includes a percentage of credit based on a specific dollar amount spent. The qualifications may also include the amount of savings reduction realized with the installation.

To receive the investment tax credit, an individual or company will typically follow the guidelines set forth by a government. Each jurisdiction may vary, but an individual or company may obtain this information from the local tax authority. In general, the individual or company completes a form for the tax credit when completing annual taxes. The form is usually submitted with proof of the investments and other supporting documents.


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