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The Inflation Reduction Act 2022: A Win For Solar

Disclaimer: This article is intended to provide information on the federal investment tax credit for those interested. It does not constitute professional tax advice or other financial guidance, nor should it be the only source of information when making tax-related decisions.

So, you’re interested in going solar and keep seeing conflicting terms about the tax incentives. Some call it a “coupon,” “tax refund,” “solar tax credit,” “ITC,” or even a “tax break.” The most accurate and correct term for the incentive is an investment tax credit (ITC). In that, it is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe.

Example

It’s tax time.  Uncle Sam hits you with a federal bill of $2,000. Luckily you went solar, filled out the form 5695 and received an ITC of $2,000. The amount you now owe in federal taxes has dropped to $0.

If your ITC is $5,000, and only owe Uncle Sam $2,000 in federal taxes, the remaining $3,000 credit will be applied to future years.

Get the Most Out of the ITC

The two great things about the ITC are: there’s no maximum amount that can be claimed and the cost of assembly of installation is included. This means if you need a new roof or structure (carport, pergola, patio, etc.) in order to install the solar panel system, it can be included in the ITC – that’s like a 30% coupon for a patio!

The solar ITC decreased to 26% in 2022, but thanks to the Inflation Reduction Act, the ITC has returned to 30% until 2032. The ITC now applies to battery backups too. The pre-IRA ITC sort of applied to backup power when done at the same time as the solar panel installation. In the same way a carport, patio, or ground mount would come with the tax credit. 

Now, homeowners that already went solar can get battery backups added and will see the 30% tax credit applied. This is great news for anyone looking to add energy storage to their power supply sources or just want a battery backup. The energy storage system would need to provide at least five kWh of storage, so no one Enphase Encharge 3 battery; you would need at least two. This isn’t too big of a deal because one would only power like, a bedroom with no HVAC.

Example of IRA Changes

The 4% increase in ITC is a nice dollar-sign bag of change. For example, in the Pre-IRA ITC, an 8kW system capable of bringing a $150 CPS Energy bill down to just the service the fee would cost around $25,000 before the $2,500 CPS rebate and ITC.

Pre-IRA ITC: 0.26 x ($25,000-$2,500) = $5,850

IRA ITC: .3 x ($25,000-$2,500) = $6,750

That’s an extra $900 off in taxation. If you aren’t sure how tax credits work, check out our article on the subject.

Source: SEIA

Plus Backup Power

The ITC now applies to battery backups too. The pre-IRA ITC sort of applied to backup power when done at the same time as the solar panel installation. In the same way a carport, patio, or ground mount would come with the tax credit. Now, homeowners that already went solar can get battery backups added and will see the 30% tax credit applied. This is great news for anyone looking to add energy storage to their power supply sources or just want a battery backup. The energy storage system would need to provide at least five kWh of storage, so no one Enphase Encharge 3 battery; you would need at least two. This isn’t too big of a deal because one would only power like, a bedroom with no HVAC.

Things to Consider

When it comes to taxes, there are a lot of exceptions. The ITC is no different. First off, in order to qualify for it, the solar panel system needs to be installed after January 1st, 2022 and before December 31st, 2032. Installation time can vary greatly on permit time (HOA, utility company, even yourself). Not until Solar Edge Pros receives permission from all agencies can we begin installation, which typically is done in just one day (find out more about the installation timeline here. So it’s best to sign the contract to go solar at least three months before 12/31 in order to qualify.

The ITC only applies on the original installation. So, if you purchased a small system, then later decided you wanted more panels, the tax credit would not apply on the ones added. You’ll save more by going solar once per a property. We recommend considering your home’s future electrical use when going solar:

Are you expecting children to move out in the next five to ten years?

Are you expecting to add a pool to the property?

Will you be working from home more?

Schedule an appointment with one of our knowledgeable consultants to see how we can help save you the most on your electric bill.

More information on the solar tax credit

Additional Resources

Solar Tax Credit FAQs

What is the Solar Incentive Tax Credit?

As of 2022, the solar installation tax credit is 30%. The tax credit also applies to the cost of materials for installation including a patio, carport, or ground mount.

How does the solar tax credit work?

Here’s an example: It’s tax time. Uncle Sam hits you with a federal bill of $2,000 in taxes. Luckily you went solar, filled out the form 5695 and received an ITC of $2,000. The amount you now owe in federal taxes has dropped to $0. If your ITC is $5,000, and you only owe Uncle Sam $2,000 in federal taxes, the remaining $3,000 credit will be applied to future years.

I already went solar, but I want more. Will the tax credit apply to more solar panels?

No. The tax credit only applies to the initial installation.

I went solar awhile ago and now want battery backups. Is the cost of installation eligible for the 30% tax credit?

Yes. The tax credit will apply to any energy storage system that provides more than 5kWh of power.

Does the solar tax credit apply to everyone that pays taxes?

No. There are many factors that could deem someone ineligible for the tax credit. Please consult a financial advisor for information on your particular case.

Your Local Solar Installer in San Antonio

Solar Edge Pros is located near North Star Mall in San Antonio, Texas. Since 2014, we have done over 5,000 solar installations. All our jobs are done in-house with no sub-contractors. Schedule a free solar evaluation for your property by clicking the link below.

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Meet The Author

davidm

davidm

David is an Air Force veteran with a Masters in Diplomacy from Norwich University. He is currently Solar Edge Pros' Director of Marketing.

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