With the passage of the Inflation Reduction Act, the solar tax credit has increased to 30% and been extended for 10 years to 2032. But many businesses and homeowners have questions about the solar tax credit works, if they qualify, and how much they could save from the solar incentives.
Here is a guide to the solar tax credit and other information related to solar incentives.
In This Article:
- What Is The Solar Tax Credit? How Does It Work?
- How To Qualify for 30% Solar Tax Credit
- What Costs Qualify for 30% Solar Tax Credit?
- Are Batteries Eligible for 30% Solar Tax Credit?
- Does The Solar Tax Credit Work with State, Local, Utility Incentives?
- Are EV Chargers Eligible for the Solar Tax Credit?
WHAT IS THE SOLAR TAX CREDIT? HOW DOES IT WORK?
The solar tax credit is just what the name implied, a tax credit. It’s an incentive that can be decrease your tax liability if you owe taxes.
For instance, if you owe $5,000 in federal taxes and are eligible for a tax credit of $1,500, your tax liability drops to $3,500.
The value of the tax credit you earn is based on a percentage of “qualifying costs” of installing solar panels. For 2022, the solar tax credit is worth 30% of the installation costs. So, if your solar installation cost $25,000, you would be eligible for an income tax credit of $7,500.
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.
This means a $25,000 solar system installed in 2022 would receive a credit amount of $7,500, while a system installed for the same price in 2034 would only receive $5,500.
WHAT IF I OWE LESS THAN MY SOLAR TAX CREDIT?
The solar tax credit is non-refundable. This means that if your solar tax credit is more than what you owe in taxes, you will not receive a check or refund that year for the excess credit. However, that doesn’t mean this unused tax credit expires.
If your solar tax credit is worth more than you you owe in taxes, it can be carried over for the next 5 tax years.
For example, if your solar tax credit is worth $7,500 but you only owe $5,000 in federal income taxes, the remaining $2,500 will be applied to next year’s taxes. The solar tax credit can be carried over for a maximum of 5 years.
Estimate your total savings, payments, and total energy usage with our FREE solar calculator.
HOW TO QUALIFY FOR THE 30% SOLAR TAX CREDIT
Qualifying for the 30% solar tax credit are pretty simple and easy. To qualify for the tax credit, you must meet the following requirements:
- Your solar installation must be completed and operational between 2022 and 2032.
- You must be the owner of the solar installation.
- Your solar system must be installed at your primary or secondary residence.
- You must have taxable income.
WHAT COSTS QUALIFY FOR THE 30% SOLAR TAX CREDIT
Nearly all costs associated with a solar panel installation are covered by the solar tax credit. Here is a breakdown of the costs that are covered by the solar tax credit.
- Equipment: This includes the cost of solar panels, inverters, wiring, racking, and various other equipment necessary for a solar installation.
- Labor: The cost of labor associated with site preparation, installation, and planning, as well as the cost of any permitting fees and inspections.
- Sales Tax: Any sales tax associated with the above costs is also covered by the tax credit.
Note: Costs associated with the repair or replacement of a roof structure are not covered by the solar tax credit.
ARE BATTERIES ELIGIBLE FOR THE 30% TAX CREDIT
Yes! Energy storage systems such as batteries are eligible for the 30% tax credit. This includes batteries installed with solar panels and standalone batteries not installed alongside solar panels. Standalone batteries charge from the utility grid as opposed to being charged by solar panels.
To qualify for the solar tax credit, a battery must be installed in the home of the taxpayer, and it must be at least 3 kilowatt-hours (kWh) in size. Most home storage batteries are around 10 kWh in size, so you likely won’t have to worry about the minimum capacity requirement.
To learn more about home battery backup, visit our battery backup page.
If you would like a free battery backup quote, contact us today!
DOES THE SOLAR TAX CREDIT WORK WITH STATE, LOCAL, AND UTILITY INCENTIVES?
In nearly all cases, the solar tax credit can be combined with state, local, and utility incentives. However, there are key distinctions that are important to keep in mind.
Utility Incentives: In most cases, if you’re getting a rebate from your utility company, the value of the utility rebate will be subtracted from your total costs before the federal tax credit is calculated. This reduces the value of your tax credit.
State and Local Incentives: In most cases, state and local incentives have no impact on your federal solar tax credit. These incentives normally do not need to be deducted before calculating your federal solar tax credit.
Note: Green Ridge Solar is not composed of tax professionals. We advise you consult your tax accountant for full details about the solar tax credit.
ARE EV CHARGERS ELIGIBLE FOR THE 30% SOLAR TAX CREDIT?
No. Electric Vehicle (EV) chargers are not eligible for the 30% solar tax credit.
However, if you are looking to buy an EV, there are still valuable incentives available.
The Inflation Reduction Act 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 will increase 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.
There are some limitations, however. Starting January 1, 2023, in order to qualify for the $7,500 tax credit, EVs must be assembled in North America. There will also be limits on which EVs qualify for the credit based on their manufacturer suggested retail price, or MSRP: $55,000 for new cars and $80,000 for pickup trucks, SUVs, and vans.
Also starting January 1, 2023, the credits will be capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers.
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!
Learn more about electric vehicles and how to fuel them with solar panels. Contact us today.