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Frequently Asked Questions on The Solar Tax Credit

Frequently Asked Questions on The Solar Tax Credit

The concept of solar incentives is simple: Reduce the cost of solar to make clean energy accessible to more people. In this article we’ll take a closer look at frequently asked questions about the solar tax credit and how it works.

What Is the 2023 Federal Solar Tax Credit?

The solar tax credit is a dollar-for-dollar reduction in your tax liability worth up to 30% of the cost of a solar and/or battery project. This incentive is also known as the investment tax credit (ITC) and Residential Clean Energy Credit. The ITC was created to facilitate the adoption of clean energy. The ITC has been reduced and extended several times since 2008. In 2022, with the tax credit at 26%, the signing of the Inflation Reduction Act lifted it back to 30% where it will remain through 2032.

The only requirements to use this incentive are:

  1. You own the system by going solar via cash or a solar loan (lease or PPA financing cannot claim the tax credit)
  2. You have an income tax liability, which is what this incentive reduces.

Pre & Post Inflation Reduction Act of 2022 charts

Do Batteries Qualify for the Solar Tax Credit?

Yes, it was quite the ride waiting for a climate bill that would expand solar and battery incentives. But the ride is over and battery storage definitely qualifies for the 30% federal tax credit. Not only is the 30% Residential Clean Energy Credit effective immediately, it also applies retroactively to solar and battery storage installed any time in 2022. So if you purchased solar and/or battery in 2022, your available federal tax credit increases from 26% to 30% of the gross cost of the project.

To qualify for the 30% tax credit, battery storage must be:

  1. Installed in connection with a dwelling unit located in the United States and used as a residence by the taxpayer
  2. Have a capacity of not less than 3 kilowatt hours.

According to the bill, the 3-kilowatt-hour minimum battery capacity took effect in 2023. Considering the average battery installation is closer to 10kWh, most batteries will easily exceed the minimum amount to qualify for the solar tax credit.

It’s important to note that the Residential Clean Energy Credit is a nonrefundable credit that can be used to lower your federal tax liability.

What does that mean? It means the tax credit is not a check that comes in the mail. Rather, it’s a credit that can be used to reduce your federal tax liability beginning in the same tax year that your battery was installed and deemed operational by a government inspector.

Can the Solar Tax Credit Be Combined With Other Incentives?

Yes, the solar tax credit can be combined with state, local, and utility incentives to further reduce the cost of solar and battery systems.

But remember, the solar tax credit is worth 30% of solar/battery expenditures (i.e., what you paid for the system). So, if you claim a rebate that reduces the cost of the system – even retroactively – it reduces the value that the credit is based on.

For example, say you buy a 5 kW solar system in upstate New York for $25,000. The NYSERDA rebate would reduce the upfront cost of that system by $1,500 and reduce the solar expenditure to $23,500. Instead of being worth $7,500, the tax credit would now be worth $7,050, as shown below.

table displaying amount with and without rebates

Even though it’s available for the next 10 years, solar and battery storage are long-term investments, so the sooner you invest, the sooner you’ll enjoy a return. If you’re ready to go solar and want to receive a free precise quote, contact us today at (661) 535-0795 or visit our website and set up an appointment today with one of our solar educators.

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