Summary
Homeowners and business owners who install solar or purchase membership in a community array, are eligible for the federal solar tax credit, which can mean large savings and financial advantages when transitioning to clean solar power!
The Inflation Reduction Act of 2022 (H.R. 5376) made several significant changes to investment tax credit, including expanding the eligible technologies, extending the expiration date, modifying the scheduled step-down in its value, providing for new bonus credits, and establishing new criteria to qualify for the full credit.
The Federal solar tax credit allows you to deduct 30% of the cost of investing in a solar energy system from your federal taxes. The 30% tax credit will be available until the end of 2032. The key points in the Inflation Reduction Act (IRA) for homeowners, non-profits and businesses are:
- The federal tax credit allows both homeowners and businesses to claim 30% of their solar system costs from their taxes, with no cap.
- The tax credit can be used for battery storage and EV chargers, with certain caps.
- It will be applicable to heat pumps and heat pump water heaters starting in 2023.
- The 30% tax credit will last for 10 years until the end of 2032, at which point it will drop to 26%.
Business Energy Investment Tax Credit (ITC)
Businesses, and non-taxpaying entities like nonprofits and municipalities, can benefit from a 30% tax credit on renewable energy systems, called the energy investment tax credit. As with the residential tax credit, it will step down to 26% at the end of 2032.
Starting in 2023, businesses can utilize potential stackable “bonus” ITC adders that can increase the total ITC value of 40%, 50% or more. “Bonus” credits can apply to projects that meet domestic manufacturing requirements, projects in defined “energy communities” or in Low-Income areas, and projects part of HUD-approved affordable housing programs.
Non-taxpaying entities like municipalities and nonprofits may now access the ITC via a new “direct pay” provision by receiving a 100% government rebate for the ITC value in 2023 and from 2024 onwards if they meet certain requirements.
Visit DSIRE at www.dsireusa.org for a complete listing of federal and state renewable incentives. DSIRE is the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States. Established in 1995, DSIRE is operated by the North Carolina Clean Energy Technology Center at North Carolina State University and is funded by the U.S. Department of Energy.
FAQs
How does the solar tax credit work?
When you utilize the 30% credit on your solar project, the ITC amount is applied against your tax liability, or the money you owe the IRS.
You claim the investment tax credit for solar when you file your yearly federal tax return.
Who Is eligible for the tax credit?
As long as you own your solar power system (as a member of a community solar array you own the panels), you are eligible for the solar investment tax credit.
If you sign a lease or power purchase agreement (PPA) with a solar installer, you are not the owner of the system, and therefore cannot claim the tax credit.
It’s important to note that there is no income limit on the federal solar tax credit program, so taxpayers in all income brackets may be eligible.
What is covered by the tax credit?
For homeowners who utilize the 30% ITC, you can cover the following:
- The cost of your solar panels
- The labor costs for installation, including permitting fees, inspection costs, and developer fees
- Any additional solar equipment, like inverters, wiring, and mounting hardware
- Solar batteries charged by your system (standalone battery storage will be covered starting in 2023)
Can the solar tax credit be used in combination with other incentives?
In general, you should be able to combine savings from the ITC with other incentives.