This legislation has had a major impact on clean energy investment - and more recently, its future has been under debate. Many questions have arisen regarding the future of the Inflation Reduction Act (IRA) under the new administration.
What is the IRA?
The Inflation Reduction Act (IRA), signed into law by President Biden on August 16, 2022, represents the largest U.S. investment in climate change mitigation and adaptation to date. The IRA introduced over 20 new or expanded tax incentives designed to accelerate clean energy development, reduce carbon emissions, and strengthen U.S. manufacturing.
How Could the IRA Be Impacted?
While the IRA’s future under the next administration remains uncertain, experts generally agree that a full repeal is unlikely. A recent report from Columbia University's Sabin Center for Climate Change Law outlined the following:
1. Limited Ability to Redirect Funds
Once allocated, the IRA funds are largely protected. No more than 10% of funds in any IRA program can be redirected, making it difficult to reverse the progress already made.
2. Investment Tax Credit (ITC) Phasing Out
Experts suggest that while the Investment Tax Credit (ITC) may not be reduced immediately, there is a possibility that it could be phased out earlier than its current 2033 expiration date.
3. Significant Spending Already Committed
Federal agencies and departments have also announced tentative awards for roughly two-thirds of the $145.4 billion appropriated to climate efforts by the Inflation Reduction Act. This means that a future administration would have limited ability to reallocate or cut these funds. Top U.S. news outlet Politico also reports that, by law, the Environmental Protection Agency’s $27 billion Greenhouse Gas Reduction Fund had to be obligated by September 30. This fund includes all the funding for low-income solar for all programs. For more information, visit here.
What Solar United Neighbors Recommend
Our trusted partner, Solar United Neighbors (SUN), has also recently shared their perspective on the matter. SUN is a national nonprofit organization that advocates for solar energy owners and supporters. As dedicated solar organizers, communicators, and policy experts, they have been championing solar energy since 2007. They have provided valuable insights on how the Inflation Reduction Act (IRA) could be impacted under the new administration.
In light of the uncertainty surrounding future policy, SUN recommends installing solar before January 20, 2025, when the new administration takes office. While experts suggest a full repeal is unlikely, SUN cautions that a new Congress could still vote to repeal the solar tax credit, potentially affecting systems installed after that time. You can read their full blog post here.
To help protect solar rights, SUN has launched a petition. You can show your support and sign the petition here.
Want to learn more about the Inflation Reduction Act?
If you're interested in learning more about the Inflation Reduction Act and its specific benefits for solar installations, you can find all the details you need below.
Inflation Reduction Act Solar Panels
The Inflation Reduction Act of 2022 introduced several new opportunities for homeowners to save on clean energy improvements, including discounts on solar panel installations. This benefit, often referred to as the Solar Tax Credit, is officially known as the Investment Tax Credit (ITC). It serves as an incentive to encourage investments in renewable energy, aligning with the government's goal to promote sustainable energy solutions.
It's important to note that the solar tax credit is referred to by several different names, but they all represent the same federal program that provides tax incentives for installing solar energy systems. The primary distinction between these terms usually depends on the context (residential vs. commercial). Here are the most common names for the credit:
- Federal Solar Tax Credit - A general term for the U.S. federal tax incentive for solar energy systems.
- Investment Tax Credit (ITC) - The official name of the program that provides a tax credit for installing solar systems, applicable to both residential and commercial installations.
- Solar Investment Tax Credit - Another term for the Investment Tax Credit (ITC)
- Residential Solar Tax Credit - Refers to the ITC available for homeowners who install solar systems
- Commercial Solar Tax Credit - Refers to the ITC for business or commercial entities installing solar systems
- ITC Solar Tax Credit - A shortened version for the Investment Tax Credit for Solar Systems.
- Investment tax credit for solar - A more specific way of referring to the Investment Tax credit when applied to solar installations
- Business solar tax credit - refers to the commercial version of the ITC, aimed at businesses that install solar systems.
What is a tax credit?
A tax credit is a dollar for dollar reduction in the amount of income tax you owe. For example, claiming a $1,000 federal tax credit reduces your federal income taxes due by $1,000.
What is the solar tax credit?
The solar tax credit is a tax credit that can be claimed on federal income taxes at a percentage of the total cost of a solar installation, including equipment and labor. As of 2024, the solar tax credit is set at 30% of the total cost of a solar installation. In other words, you can save thousands of dollars in the form of a 30% tax credit.
This tax credit is regarded as the most valuable incentive you can claim because it saves you thousands of dollars in the form of a 30% tax credit and there’s no limit to the amount you can claim.
How long is this tax credit available for?
The tax credit will stay at 30% for the next nine years until 2033, at which point it will drop to 26%. However, with the new administration this could be subject to change.
The U.S. Department of Energy states that if you installed a Solar PV System in 2020 or 2021, you could get a 26% tax credit. In August 2022, Congress passed a law to increase the tax credit to 30% for solar systems installed between 2022 and 2032.If you installed a system before December 31, 2019, you also got the 30% tax credit. After 2032, the tax credit will go down to 26% in 2033 and 22% in 2034. The tax credit expires in 2035, unless Congress decides to extend it. Below is a visual breakdown of how this works.
| YEAR | FEDERAL SOLAR TAX CREDIT |
| 2022-2032 (where we are currently) | 30% |
| 2033 | 26% |
| 2034 | 22% |
Support for Tax-Exempt Entities
Previously, organizations that don't pay taxes, like charities, schools, and churches, couldn't get tax credits for using solar energy. But now, the Inflation Reduction Act lets these organizations get direct cash payments instead. This not only encourages more groups to use solar power, but also helps people learn about the benefits of using renewable energy.
Solar Battery Storage Tax Credit
Are you wondering if you can get a tax credit for solar batteries? The good news is that you can! The Inflation Reduction Act also applies to battery storage and electric vehicles. If you have an energy storage device that can hold at least 3 kilowatt-hours of energy, and you install it after December 31, 2022, you're eligible for a tax credit.
You can receive credit for installing the storage device, even if it's in a different year than your solar energy system. This is possible as long as you meet the installation date requirements. This credit is 30% of the battery storage device cost, encouraging the use of clean energy.
Eligibility for the Solar Tax Credit 2023
There is set criteria to be eligible for the solar tax credit as a homeowner. If you're planning to claim the Solar Tax Credit under the Inflation Reduction Act, you will need to match the following requirements:
- You have a property in the United States where you've installed a solar energy system. It could be your main abode, vacation house, or even a rental property, as long as the system is being used for residential or commercial purposes.
- Your solar PV system was installed between January 1, 2017, and December 31, 2034
- The Solar PV system is new or being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment.
For the full criteria visit specific instructions from the US Energy Department of Energy.
What kind of tax credits can you get from a solar installation?
It's worth noting that the solar federal tax credit will only reduce the amount of taxes you have to pay. It won't give you back any money you've already paid. If you spend money on solar energy for your home or business, you can get a credit on your taxes.
If the credit is more than what you owe in taxes, you can use the extra amount to reduce your federal tax in the future. But you can't keep the credit forever, so make sure you plan carefully to get the most benefit.
Ready to bask in the solar rewards? Sign up for SolarSwitch today for a personalized solar quote.
How to Claim the Solar Panel Tax Credit
If you want to get credit for installing solar panels at home, you need to fill out a form called IRS Form 5695 and include it with your tax return. This form helps you figure out how much credit you can get based on how much you spent on the solar panel system and other qualifying expenses. It's important to keep all receipts and documents related to your solar panel system in case you need them when you file your taxes.
Overall, claiming the solar tax credit is a straightforward process that involves a few simple steps:
1. Eligibility Check: Verify your eligibility for the solar tax credit.
2. IRS Form 5695: Complete IRS Form 5695, which is instrumental in calculating your solar tax credit.
3. Tax Filing: Incorporate the credit amount from Form 5695 to Schedule 3 and Form 1040 of your tax return.
Subsidies, Rebates and Incentives
When calculating your credit, you may need to subtract subsidies, rebates, or other financial incentives from your expenses. If you received subsidies for clean energy, subtract them from your expenses. Net metering credits won't affect your expenses.
If you received a rebate from someone connected to the sale, subtract it from your expenses. State energy efficiency incentives may need to be included in your total income for federal income tax purposes. Contact your state's tax department to claim state tax credits and talk to a tax professional to ensure you fill out all necessary forms correctly and submit them on time.
Can You Claim the Solar Tax Credit Twice?
Many people wonder if they can claim the Inflation Reduction Act Solar Tax Credit more than once. The answer is yes, but there are some conditions. You can only claim the tax credit if you own the property where the solar energy system is installed. For example, if you have a solar energy system on your home and later install another one on a rental property, you can claim the tax credit for both installations.
But, you can only claim the tax credit for one solar energy system per property. This means that if you install multiple solar energy systems on the same property, you can only claim the tax credit for one of them. Also, you can only claim the tax credit for the year when the system starts working. If you install a system in 2023 but it doesn't start working until 2024, you can only claim the tax credit for 2024.
It's important to note that the tax credit is based on the cost of the solar energy system itself, not on the number of systems installed. So, if you install multiple systems on different properties, you can claim the tax credit for each system based on its cost. However, the total amount of the tax credit cannot be more than your tax liability for the year.
Maximizing Your Savings with the Solar Panel Tax Credit
If you're considering installing solar panels, you need to act fast, because the credit will decrease over time. The sooner you install solar panels, the more money you'll save.
There are ways to make solar panels more affordable besides the Federal Solar Tax Credit. Different states and solar panel companies offer different incentives and rebates, so it's worth looking into what options are available in your area. You could also join group buying programs like Solar Switch, which can save you around $4,000 on your solar panel system in addition to tax credits.
By encouraging the use of solar energy through tax credits, and promoting battery storage and electric vehicles, we can create a more sustainable future. By embracing solar power, we can move towards a world where energy sustainability meets economic stability.