Solar Tax Credit & Incentives

Federal Solar Tax Credits & Incentives

Homeowners and business owners who install solar are eligible for the federal solar tax credit, which can mean large savings and financial advantages when transitioning to clean solar power! The federal solar 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:

  1. The federal tax credit allows both homeowners and businesses to claim 30% of their solar system costs from their taxes, with no cap.
  2. 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.
  3. The 30% tax credit will last for 10 years until the end of 2032, at which point it will drop to 26%.
  4. The credit rolls over if you don't have enough tax liability to use it all in one year.

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 your embark on your solar journey!

Residential Solar Investment Tax Credit

Photo_Jul_11_16 05-05-54 PM-1.jpgWith 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 of 30%. That means customers installing solar in 2022 will now receive the full 30% when they file their 2022 taxes!

Residential Credit for Home Energy Products

The 30% solar tax credit covers installation of solar complimentary technology, including battery storage and EV charging infrastructure, up to certain amounts.

Starting in 2023, 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. You will be able to deduct 30% of the costs for buying and installing heat pumps and heat pump water heaters, up to $2,000. The Energy Efficient Home Improvement credit also covers insulation and the breaker boxes to accommodate additional electric load, up to $1,200.

Starting in 2023, there will also be a tax credit available for stand-alone battery storage with no cap, opening up options to use storage more flexibly.

Additional Resources:

Federal Tax Credit FAQs:

How does the solar tax credit work?

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.

What is covered by the tax credit?

For homeowners who utilize the 30% Residential Clean Energy Credit, 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 battery storage charged by your system (stand alone battery storage will be covered starting in 2023)
Should I wait until 2023 to install heat pumps?

We recommend our customers who have already scheduled their heat pump installation in 2022 to stay the course. With heating fuel prices already extremely high and on the rise, a heat pump system installed near the beginning of the heating season prior to January 1st will yield maximum fuel savings this heating season. Additionally, with the looming gigantic increase in demand for heat pump installations, no contractor – including ReVision – will be able to keep up with the demand for January installation requests which could mean pushing out installations to keep up with the demand into February, March or later while you spend top dollar on fossil fuel heating.

You should also expect price increases on these systems as the demand surges which will eat into the tax savings difference that is capped at $2000.  Lastly, the tax credit on your system wouldn’t be realized until your 2023 tax filing which won’t occur until 2024…more than 16 months from now.  ReVision advises to move forward with your installation now, beat the rush, maximize your fuel savings and climate impact at the lowest upfront cost we’ll see in the next decade.

Why is the solar tax credit important?

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 federal 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.

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. 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:

  1. Going Solar in Maine
  2. Going Solar in Massachusetts
  3. Going Solar in New Hampshire

Business Solar Investment Tax Credit

Take Flight TeamBusinesses, 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.

MACRS + Bonus Depreciation

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.

Additional Resources:
  1. DSIRE - Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation
  2. IRS Form 4562 - Depreciation and Amortization (Including Information on Listed Property) (PDF)
  3. IRS - Instructions for Form 4562 (PDF)