In a surprising turn of events, Senator Joe Manchin (D-WVa) and Senate Democrats reached an agreement on a reconciliation bill that could have huge benefits for solar energy, battery, and EV industries. The Inflation Reduction Act of 2022 includes $370 billion in spending for renewable energy and climate measures, including increasing the solar tax credit to 30% and extending it until 2032.
One of the most impactful provisions in the bill is the long-term extension of the federal solar tax credit (Investment Tax Credit, or ITC), which has been vital in propelling the solar industry to where it is today. The bill calls for the solar tax credit to be increased to 30% and extended for 10 years, which will then step the tax credit down to 26% in 2033 and 22% in 2034.The tax credit applies to residential solar installations.
The 30% credit also applies to energy storage, including energy storage that is installed with or without a solar panel system. This enables the retrofit of a battery to a solar array while taking advantage of the credit.
One measure that was hoped for, but is not in the bill, was the “refundability” clause. Refundability means that if the tax credit value exceeds taxes owed for that year, it would be paid as a cash refund. This provision was not included, which decreases the value of the credit for some individuals. However, the credit can be rolled over to a following year.
There are several adders for the tax credit depending on the type of organization, domestic product use, and project location. ROTH Capital Partners said that the investment tax credit could reach as high as 50% for some projects with the right adders applied.
The credit also includes the “direct pay” provision. This would allow a developer with little or no tax liability to treat the amount of credit as an overpayment of tax which would result a cash payment refund in the amount of such overpayment being made to the developer.
“With long-term incentives for clean energy deployment and manufacturing, the solar and storage industry is ready to create hundreds of thousands of new jobs and get to work building out the next era of American energy leadership. This is a crucial window of opportunity that we cannot miss, and now Congress must seal the deal and pass this legislation,” said Abigail Ross Hopper, president of the Solar Energy Industries Association.
The bill is expected to head to the Senate floor for a vote as early as next week.
LEARN MORE ABOUT SOLAR TAX CREDITS
To learn more about the federal solar tax credit, and to get a free solar analysis, contact Green Ridge Solar today. Our solar experts can provide you with all the details about how the solar tax credit works, how you can lock in your rate, and how much you can expect to save as a result.
If you would like to read the legislation regarding the solar tax credit extension, the document can be found here. Skip to page 2439 for the commercial solar tax credit, and page 2448 for the residential solar tax credit.
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