If you are a homeowner who wants to go solar, you may be interested in the benefits of the Inflation Reduction Act of 2022 (IRA), which was signed into law on August 16, 2022. The IRA is a landmark legislation that aims to tackle several important issues, such as reducing inflation, making prescription drugs more affordable, and investing in clean energy, just to name a few.

One of the key provisions of the IRA is the restoration and extension of the Solar Investment Tax Credit (ITC), which is a federal tax credit that reduces the cost of installing solar panels on your home. The ITC was set to phase out gradually from 2020 to 2022, but the IRA restored it to 30% of the cost of eligible solar equipment and extended it for another 10 years until 2032. This means that you can claim 30% of your solar expenses as a credit against your federal income tax liability for the year you install your solar panel system or the following year.

Does the ITC Include Solar Batteries?

Another benefit of the IRA is that it expanded the types of solar equipment that qualify for the ITC. Previously, only solar panels and inverters were eligible, but now batteries, generators, and other backup power sources are also included, as long as they are powered by solar energy. This means that you can enhance your solar power system with storage devices that can provide you with electricity during power outages or peak demand periods.

Am I Eligible for the Credit?

To claim the ITC, you must meet certain criteria and eligibility requirements. First, you must own your system, either by purchasing it outright or through a loan. If you lease your system or sign a power purchase agreement (PPA) with a third-party provider, you cannot claim the ITC. Second, you must install your system on a property that you use as your primary or secondary residence. Third, you must place your system in service (i.e., start using it) before December 31, 2032.

What if the Credit is Higher than my Tax Liability?

The ITC is a nonrefundable credit, which means that it can only reduce your tax liability to zero, but not below. However, if your credit exceeds your tax liability for the year, you can carry over the excess amount to the next year and apply it to your future tax bills until 2033. For example, if you install a $20,000 solar power system in 2023 and claim a $6,000 credit (30% of $20,000), but your tax liability for that year is only $4,000, you can use $4,000 of your credit to pay your tax bill and carry over the remaining $2,000 to 2024.

The ITC is one of the most generous incentives for going solar in the United States. It can significantly reduce the upfront cost and payback period of your solar investment. According to a recent study by the National Renewable Energy Laboratory (NREL), the average cost of residential solar installation in 2020 was $2.81 per watt before incentives and $1.96 per watt after incentives. With the IRA’s extension of the ITC at 30%, the after-incentive cost could drop even further.

Now is the time to take advantage of these solar savings! Contact a solar expert from Solcius today by calling 1-800-960-4150 or visit our contact page to request a free solar proposal.