With the 2024 presidential election on the horizon, many are speculating about how a potential second term for Donald Trump could impact solar incentives, especially the solar tax credit. Solar incentives, a critical component of the green energy movement, are at the forefront of this discussion. This article will explore the current state of solar tax credits, how they’ve evolved under President Biden, and what changes might occur if Donald Trump is re-elected.
In This Article:
- What is the Solar Tax Credit?
- President Biden Extended & Expanded Solar Tax Credit, Incentives
- How Solar Tax Credit, Incentives Might Be Affected by Second Trump Presidency
- Should You Install Solar Panels Before Trump Becomes President Again?
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What is the Solar Tax Credit?
The solar tax credit, officially known as the Investment Tax Credit (ITC), is a federal incentive aimed at promoting the adoption of solar energy systems. It allows homeowners and businesses to claim a tax credit based on a percentage of the cost of installing a solar panel and/or battery backup system. The solar tax credit has been instrumental in making solar energy and batteries more affordable and accessible to a broader range of individuals and organizations.
The solar tax credit works by allowing eligible taxpayers to deduct a percentage of the qualified solar energy or battery backup system’s cost from their federal income taxes. The solar tax credit was increased to 30% in 2022 thanks to the Inflation Reduction Act (IRA). The 30% solar tax credit will step down to 26% in 2033, and again down to 22% in 2034. The solar tax credit expires in 2035.
To claim the solar tax credit, taxpayers must meet specific criteria. The solar panels or batteries must be installed on a taxpayer’s primary residence or a secondary property, such as a vacation home. Additionally, the solar panel or battery backup system must meet the qualifications set by the IRS, which typically require the panels or batteries to be certified and meet certain safety and performance standards.
The credit can be claimed in the tax year when the solar or battery system is installed and placed into service. If the credit amount exceeds the taxpayer’s tax liability for that year, the excess can typically be carried over to future tax years until it is fully utilized. However, it’s worth noting that the solar tax credit is non-refundable, meaning it cannot be used to receive a refund beyond the taxpayer’s tax liability.
In addition to increasing the solar tax credit to 30%, the IRA also expanded the tax credit to standalone battery storage systems. Before 2022, the solar tax credit could only be applied to battery storage when installed alongside a solar panel system. But with the IRA legislation in 2022, battery storage is now eligible for the 30% tax credit whether installed with or without a solar panel system.
Learn more about battery storage and backup systems.
Overall, the solar tax credit serves as a powerful incentive that saves homeowners and business a lot of money when installing solar panels. By reducing the upfront costs associated with solar installations, the credit plays a significant role in accelerating the transition to clean and sustainable energy sources.
See our Solar Tax Credit Guide for more details about the 30% solar tax credit. To see other solar incentives you might qualify for, see our Solar Incentives Guide.
President Biden Extended & Expanded the Solar Tax Credit, Incentives
President Joe Biden has been a staunch advocate for renewable energy, aiming to combat climate change and promote energy independence in the US. Under his administration, the solar tax credit has seen significant expansion through legislative measures, particularly the Inflation Reduction Act (IRA) of 2022. Battery storage and electric vehicle (EV) incentives also saw a huge boost with the IRA. Key aspects of this expansion include:
Extension of the Solar Tax Credit (ITC): The Inflation Reduction Act extended the 30% solar tax credit for another decade to 2032, then will step down to 26% in 2033, and again down to 22% in 2034. The solar tax credit expires in 2035. This extension of the solar tax credit provides long-term stability and predictability for the solar industry. It also encourages more homeowners and businesses to invest in solar energy and battery backup, knowing the incentive will remain available.
Inclusion of Battery Storage: Recognizing the importance of energy storage in enhancing the reliability of solar power, the IRA expanded the solar tax credit to include battery storage installed without solar panels. Before the IRA, battery storage was only eligible for the solar tax credit when installed alongside a solar panel system. The expansion of the solar tax credit to batteries allows homeowners to store excess solar energy for use during periods of low sunlight or power outages, further increasing the appeal of solar installations.
Increased Electric Vehicle (EV) Tax Credit: The Inflation Reduction Act also gave a huge boost to electric vehicles, increasing the electric vehicle tax credit and extending it to used EVs. On January 1, 2023, the electric vehicle tax credit increased to $7,500 for new EVs and now includes used EVs, which qualify for a $4,000 tax credit. These credits do not apply to EV chargers. With increases in gas prices, interest in EVs has skyrocketed, and these tax credits make them even more attractive. And when you charge your EV with solar energy, it’s essentially free fuel!
How Solar Tax Credit, Incentives Might Be Affected by Second Trump Presidency
Donald Trump’s first term as president was characterized by policies favoring fossil fuels and rolling back environmental regulations. If re-elected, his administration might take a similar approach, potentially impacting solar incentives in several ways:
Reduction or Elimination of Solar Tax Credit (ITC): Trump has shown fierce opposition to renewable energy sources, such as wind and solar, in favor of traditional energy sources such as coal, oil, and natural gas. He has also threatened to eliminate the Inflation Reduction Act (IRA). If hit threats are followed through on, this could severely reduce or eliminate the 30% solar tax credit, making solar and battery installations less financially attractive to homeowners and businesses.
Impact on State-Level Incentives: Federal policy often influences state-level incentives. States that align with Trump’s administration might reduce their support for renewable energy projects, further limiting the financial benefits for homeowners and businesses considering solar panels and battery backup.
Tariffs and Trade Policies: During his first term, Trump imposed tariffs on imported solar panels, increasing costs for U.S. consumers and slowing industry growth. A second term could see the continuation or expansion of such tariffs, making solar installations more expensive and less competitive compared to other energy sources.
Regulatory Changes: Trump’s administration could roll back regulations that support the growth of renewable energy, such as emissions standards and renewable portfolio standards. These changes could hinder the progress of solar energy adoption and investment in the sector.
Should You Install Solar Panels Before Trump Becomes President Again?
Given the potential for reduced incentives under a second Trump presidency, homeowners and businesses considering solar installations might want to act quickly. Installing solar panels before any policy changes can ensure access to current tax credits and financial benefits. The extended 30% solar tax credit under Biden’s administration offers a substantial reduction in the overall cost of solar systems, making now an opportune time to invest in renewable energy.
Installing solar now before any potential reduction or elimination of the solar tax credit also allows you to get on the solar install schedule early, before everyone else tries to get squeezed in. If the solar tax credit is reduced or eliminated, it likely won’t take effect immediately. This means that everyone who wants to install solar panels and lock in the 30% solar tax credit will rush to install their solar before the policy changes take effect. That could mean long waits and booked schedules for solar companies and solar installers, leaving you without solar savings for even longer.
The best advice on installing solar panels is to install early. Solar prices are expected to increase in the near future, and energy price inflation will mean higher energy bills for you and your family. Instead of paying higher and higher energy bills long into the future, install solar panels now and start saving. The more energy price increase, the more you save. And the earlier you install, the quicker you will see your savings.
Get your free solar quote today. Contact Green Ridge Solar today to get your free solar analysis.
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