On August 16, 2022, the solar industry and climate activists were granted a major win when President Biden signed into law the Inflation Reduction Act. This important piece of legislation is the biggest step our country has taken to combat climate change. Not only is it estimated to cut climate change causing pollution in half by 2030, but it also reinstated and extended the previous 30% solar tax credit rate for ten years beginning in 2022.
This is big news for anyone who is looking to go solar and / or add energy storage in the next decade. What previously was going to end in 2024 now has a higher return rate and a longer lifespan. But with this change comes a lot of questions - from how the tax credits work, who qualifies, and what other important renewable energy provisions were included in the bill.
This is a lengthy bill with many details that the solar industry is just beginning to sort through. While we are still learning and working with policy advisors to fully understand all the details, we wanted to dedicate this blog to those items most applicable to solar homeowners.
Please keep in mind that we are still learning, and we may update this blog as our policy experts continue to analyze and understand the bill. As always, we recommend that solar customers speak to a tax expert to determine how best to apply these bill provisions to their own unique circumstances.
30% Federal Solar Tax Credit for Homeowners
Over the past couple of years, the solar industry has seen the tax credit decrease. The original tax credit was 30% through 2019 and then decreased to 26% beginning in 2020, with a planned drop to 22% beginning in 2021. However, due to the COVID-19 pandemic, the 26% rate was extended through the end of 2022 where it would decrease again to 22% on January 1, 2023. In 2024, the tax credit was originally scheduled to end for all residential solar installations.
The Inflation Reduction Act throws out the original ramp down schedule in favor of a reinstated 30% tax credit and a 10-year extension for any residential installations through 2032. Rebranded as the "Residential Clean Energy Credit", the new rate is retroactive to any solar, or solar and battery system placed into service on or after January 1, 2022. Beginning in 2033 the tax credit will gradually phase out and be gone by the end of 2035.
Here's a quick summary of the new rates and phase-out schedule:
- 30% through December 31, 2032 (retroactive for 2022 installations)
- 26% beginning January 1, 2033 through December 31, 2033
- 22% beginning January 1, 2034 through December 31, 2032
- 0% beginning January 1, 2035 forward
Tax Credits for Stand-Alone Energy Storage
Before the Inflation Reduction Act was signed into law, homeowners could only apply tax credits to batteries when charging was sourced from other tax credit-qualifying energy sources, such as wind or solar power. With the Inflation Reduction Act, the reinstated 30% solar tax credit will be available beginning January 1st, 2023 for batteries with a capacity of at least 5 kWh, regardless of energy source, with additional qualifiers in certain applications.
Batteries connected to solar arrays can take advantage of the retroactive 30% solar tax credit for solar and battery installations brought online on or after January 1, 2022.
High-Efficiency Home Rebates
Beyond solar and energy storage alone, the Inflation Reduction Act also includes some rebates for upgrading appliances in your home. While the details of this program might not be fully developed until 2023, there are some notable benefits. Homeowners are able to receive up to $14,000 in home efficiency rebates as long as their household doesn't exceed 150% of the area's medium income as determined by the Department of Housing and Urban Development. The home efficiency rebates will be available to homeowners through September 30, 2031.
To start, the IRA will provide an upfront rebate of $8,000 for the installation of heat pumps that can both heat and cool homes. It also offers a rebate up to $1,750 for heat pump water heaters. Some other significant rebates are below:
- $840 rebate to offset the cost of a heat-pump clothes dryer or an electric stove
- Up to a $4,000 rebate to upgrade electrical panels to support new electrical appliances
- Up to a $1,600 rebate for energy-efficient insulation and sealing
A Step in the Right Direction
While the Inflation Reduction Act won't solve the climate crisis by itself, it's a huge step in the right direction. If you'd like to do your part to create a cleaner and more sustainable energy future while saving thousands of dollars along the way, consider making the switch to solar. With the reinstated and extended 30% solar tax credit, going solar has never been easier.
If you'd like to speak to a member of our team about your solar project, simply click below to request a free, no-obligation solar consultation. If you're still researching, download our free guide, "Are Solar & Batteries Right For You?" to learn all about the various factors that contribute to a solar and energy storage purchase.
