Homeowners and business owners who install solar and energy efficient products are eligible for the federal tax credit, which can mean large savings and financial advantages when transitioning to clean solar power! The federal tax credit, also known as the Residential Clean Energy Credit, allows you to deduct 30% of the total cost of a solar energy system from your federal taxes. The tax credit will be available until the end of 2032. The key takeaways are:
We cover the federal tax credits in greater depth below, for residential, commercial, and non-taxpayer entities. Our solar experts at ReVision Energy are happy to discuss these details with you as you embark on your solar journey!
With the passing of the Inflation Reduction Act Bill in August 2022, the Solar Tax Credit (renamed to the Renewable Clean Energy Tax Credit) received a 10-year extension. The solar tax credit allows households to deduct 30% of the cost of installing a solar energy system from their federal taxes. This will be available until the end of 2032, at which point it will drop to 26%.
The credit can also be carried forward to future tax years if you cannot take the full credit in the year the system was installed.
The Renewable Clean Energy Tax Credit covers installation of solar complimentary technology, including battery storage and EV charging infrastructure, up to certain amounts. Home energy upgrades, such as heat pumps and hot water heaters, also qualify for a tax credit, thanks to the new Energy Efficient Home Improvement credit.
Households can receive an uncapped 30% tax credit for a battery storage installation. An average battery storage installation costs about $18,000, meaning the average tax credit will be around $5,400. Your actual costs will depend on a variety of factors, including the size of your house and size of your planned battery storage installation.
Households can receive a 30% tax credit for heat pumps and heat pump water heaters, capped at $2,000 per year. The credit resets each tax year, effectively becoming available again for additional projects. They can also receive a 30% tax credit up to $600 for an electrical panel upgrade, but only if it’s upgraded in conjunction with another upgrade covered by the tax credit (like a heat pump). So, it might be advantageous to do both at once!
Additionally, there are further credits for low-moderate-income households, thanks to the High-Efficiency Electric Home Rebate Act (HEEHRA).
For low-income households (under 80% of Area Median Income), HEEHRA covers 100% of your heat pump costs up to $8,000, and 100% of your heat pump water heater costs up to $1,750.
For moderate-income households (between 80% and 150% of Area Median Income), HEEHRA covers 50% of your heat pump costs up to $8,000, and 50% of your heat pump water heater costs up to $1,750.
Total HEEHRA discounts across all qualified electrification projects are capped at $14,000.
Home Energy Rebates under HEEHRA are not yet available, but we expect New England states to launch programs available to their residents in 2024.
The US federal EV charging tax credits for residential customers offers eligible homeowners 30% of the cost of hardware and installation. The tax credit is for the installation of charging infrastructure and is capped at $1,000 for residential customers. Eligibility depends on your location, which our team will be happy to discuss with you.
The federal EV tax credit for manufacturers offers a tax credit of up to $7,500, depending on battery size with a minimum of 7 kilowatt hours. Additional guidelines will be released in early 2023. Previously owned electric vehicles (also known as “used vehicles”) are eligible for a tax credit of up to $4,000. All vehicles must be made by a qualified manufacturer.
For more information, visit our guide to EV Charging Incentives.
When you utilize the 30% credit on your solar project, the credit amount is applied against your tax liability, or the money you owe the IRS. As long as you own your solar power system, you are eligible for the solar investment tax credit. However, 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.
You claim the Residential Clean Energy Credit for solar when you file your yearly federal tax return.
For homeowners who utilize the 30% Residential Clean Energy Credit, you can cover the following:
The credit can also be applied to projects installing heat pumps, heat pump water heaters, solar battery storage, and electric vehicle charging.
To achieve the rigorous and necessary renewable energy benchmarks needed to slow the climate crisis, the US has heightened the federal policies and incentives to help deploy clean energy technology. While access to solar remains an obstacle for certain disadvantaged communities, solar deployment has increased rapidly across the country, on both a residential and utility-scale level.
The expansion of the clean energy tax credit has given businesses, homeowners, and tax payers the opportunity to take advantage of decreased solar costs while increasing long-term energy stability. This allows companies like ReVision Energy to utilize resources and funding to growing solar access equitably across our communities.
In general, you should be able to combine savings from the ITC with other incentives. Depending on which state you live in, there are several other solar incentives available, like rebates, state-sponsored programs, and other tax credits. Check out our state specific solar guides to learn about incentives in your state:
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 was extended with the passing of the Inflation Reduction Act Bill and 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 on 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.
Additional resources about the ITC on DSIRE - Business Energy Investment Tax Credit (ITC)
DISCLAIMER:
ReVision recommends contacting a tax professional to most accurately determine the impact of the federal tax credits on your federal taxes. Your ability to monetize rebates, incentives and tax credits depends on several factors, including, without limitation, continued state subsidization of these policies, the applicable ReVision product type, and financing decisions.
Under the federal tax code, renewable energy systems qualify for a 5-year Modified Accelerated Cost-Recovery System (MACRS) depreciation schedule. The exact benefit of this depreciation is complicated and varies depending on your businesses' tax rate, but typically it adds up to an additional 25% of a solar energy project's cost being offset by reduced tax payments.
To further sweeten this incentive, The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.
Given the time value of money, this benefit helps make solar energy systems more accessible in the near-term by businesses that will be able to save significant fossil fuel energy costs over the life of the system.
