How the New Inflation Reduction Act 30% Solar Tax Credit Works
It’s official, the 26% Solar Federal Income Tax Credit (ITC) has been extended and increased by President Joe Biden’s passing of The Inflation Reduction Act. This newly passed bill allows homeowners to shave 30% off of their residential solar installation costs through their federal taxes! Furthermore, the tax credit was set to expire in 2024, but has now been extended to 10 more years – all the way to 2032!
Will there be new solar incentives in 2022?
The new Phoenix solar installation incentives in 2022 have officially been increased from 26% up to 30%! And there’s even more good news for those who feel they just missed the boat this year… this is being made retroactive for any solar installations or clean energy home upgrades as early as January 1, 2022! So when filing your 2022 federal tax return next year, be sure to include any clean energy home upgrades for a 30% deduction.
What is the federal tax credit for solar in 2023?
In accordance with Joe Biden’s new Inflation Reduction Act, the federal tax credit for solar in 2023 will be a whopping 30% – that’s huge! It used to be 30% actually, and people were lining up to get solar panels installed on their homes and businesses to take advantage of free government money for solar…but now, it’s back! This is scheduled to remain in effect for the next 10 years until 2032 (unless it is overruled at some point…so be sure to take advantage of the increased tax credit savings and get your solar panel installation scheduled ASAP!
How does the 30 percent solar tax credit work?
Upon filing your tax return, you will be able to get a deduction of 30%. So for example, if you install a home solar panel system that costs $20,000, you will be eligible to receive a $6,000 tax credit on your taxes.
How is the Solar Tax Credit Paid?
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In the example above, you wouldn’t get a refund check for $6,000. What happens is your taxes owed would be reduced by that much in the year of solar panel installation. Now, if you reach a break even point in your taxes, but still have leftover credit, then it would rollover to subsequent years!
In other words, if your Phoenix home solar installation runs $20,000, and you install it in 2022, you are entitled to a $6,000 tax credit. Now, if you owed only $4,000, then the remaining $2,000 of credit would roll over to your next year’s taxes to help you out once again the following year. Pretty neat huh??
Biden Solar Tax Credit
President Biden signed The Inflation Reduction Act of 2022 into law on August 16, 2022. This effectively extended the solar tax credit (which was set to expire in 2024), and increased it from 26% to 30% – for 10 more years! Now those interested in residential solar installations do not need to fret about missing the boat, as many once thought.
The Inflation Reduction Act (H.R. 5376) has a broad range of measures aiming to reduce carbon emissions and help the fight against climate change. This was one of the first climate bills to come from unified Democrat Senate support. The bill states that the credit will begin to reduce to 26% in 2033 and 22% in 2034, leaving us 10 more years to save on home solar in Phoenix and throughout the USA!
The other neat thing about the bill is that there is no maximum deduction for the solar tax credit with the Inflation Reduction Act. This is huge! For those interested in saving the most amount of money, combining solar battery backup with your solar panel system would be a smart move, or even other energy-reducing projects like exterior windows, heat pump hot water heaters, better insulation, and more.
It would be smart to maximize your home energy reducing projects now in order to future-proof your electricity needs, reduce your expenses long term, and better the environment.
How long does the Solar Tax Credit Last?
With the passing of the new Inflation Reduction Act, the 30% solar tax credit will now be in effect until 2032. Thereafter it will be reduced for a couple years until it expires thereafter.
Now that said, that doesn’t necessarily mean that you have plenty of time to get around to installing solar… This is largely a democrat-backed bill that President Biden signed into effect. It is absolutely possible that the next president or group of lawmakers can choose to overturn the bill at any point.
So it is important to get moving on installing solar ASAP while the rebate is high and solar equipment prices are low. Do not wait for supply and demand, inflation or a still-recovering supply chain to drive prices up.
What Can You Write Off With The Solar Tax Credit?
With the new bill in effect, the Department of Energy has a similar list of expenses that are eligible to be covered with the solar tax credit:
- All of your solar panels as well as the equipment needed to run it; wiring, racking, inverters etc.
- All solar installation contractor’s labor for quote, design and installation
- All fees for solar permits, city & utility inspections, and any required developer fees
- Solar Backup Storage Batteries are also included in the credit! Already have a solar panel system installed, but want to add storage batteries to a solar panel system? No worries! You can even claim the tax credit for adding them, or if you just buy the solar batteries to install at a later date.
- Solar panel(s) used to power an attic fan
- Sales taxes on eligible expenses
Solar battery storage must store at least 3 kilowatts. Considering the average home solar panel system size around Phoenix is between 6 to 10 kw, it would only make sense to have at least that much to power your home overnight or in the event of an outage anyway.
Do solar leasing options qualify for the solar tax credit?
No, unfortunately not. You have to purchase outright or finance your solar panel system in order to qualify for the solar tax credit. Reason being, you don’t own it… therefore you can’t get a credit on something you do not own. This is just one more reason why solar leasing or power purchase agreements are a bad idea!!
Who can qualify for the federal solar tax credit?
The Federal Solar Tax Credit (ITC) really can help to make solar a lot more affordable. But with so many solar installation providers offering different programs from solar financing, solar leasing, PPA’s (power purchase agreements) or even $0 down “free solar”, it is very important that you know if you qualify before jumping into just any solar panel installation program.
Here’s what The Office of Energy Efficiency & Renewable Energy (EERE) has to say about who qualifies for the solar tax credit:
- You must own the solar panel system, meaning that solar lease programs and Solar Power Purchase Agreements (PPAs) DO NOT QUALIFY you for the solar tax credit! (In fact, the installer themselves get the tax credit in this case!)
- Your solar panel installation must happen between January 1st, 2022 and December 31st, 2032 – the newly updated date from the Inflation Reduction Act bill.
- Your solar panel system must be brand new original equipment, it cannot be used or repurposed equipment from a used solar panel system.
- The system must be installed on your primary residence or a secondary home that you own within the USA
- Newly built homes with solar panels installed also qualify for the solar tax credit, but again, only as long as the system was purchased outright or part of a financing program. Installing solar panels at the same time that you’re building your home is super smart as you will be able to ensure that your roof slope, landscape design etc will all be most compatible to produce the most power possible.
- Investment properties that you own and rent out can also qualify for the solar tax credit! There are some differences in how it is claimed, so be sure to talk to your accountant to properly claim the solar tax credit on an investment property that you own.
In conclusion...
As I’m sure you can see by now, the new 30% solar tax credit is a huge win for home and business owners alike, thanks to the new Inflation Reduction Act.
As Abigail Ross Hopper, president of the Solar Energy Industries Association, said, “With long-term incentives for clean energy deployment and manufacturing, the solar and storage industry is ready to create hundreds of thousands of new jobs and get to work building out the next era of American energy leadership. This is a crucial window of opportunity that we cannot miss.”
