The Federal Solar Tax Credit Increased & Extended!

If you read our previous blog from March, Explaining the Federal Solar Tax Credit, we noted that 2022 was the final year the solar tax credit was available at 26%. It was slated to drop to 22% by 2023 and be eliminated by 2024. Well, we have some good news to share! As part of the Inflation Reduction Act passed by Congress in August, the federal solar tax credit, also known as the investment tax credit (ITC), was increased to 30% and extended to 2034. That’s right! For the next 10 years, homeowners can deduct 30% of the cost of a solar system from their taxes (this includes systems installed in 2022). In 2033 and 2034, the solar tax credit will be reduced to 26% and 22% respectively and eliminated in 2035. Businesses can also claim the 30% solar tax credit but only until 2025.

Here's a little refresher on the ITC

It started in 2005 to encourage a national transition to renewable energy. In the last ten years, the average annual growth rate of residential solar in the United States has been 42%. By the end of 2021, the total solar capacity in the US reached 113.5 gigawatts, which equates to enough power for 21.8 million homes. The solar tax credit has been a huge success and has contributed to the growth in solar around the country.

A few things to remember:

You must own your solar system to claim the tax credit. A leased system or power purchase agreement (PPA) with a solar installer are not eligible for the credit.
The credit can only be claimed on the original installation of the solar system. So, if you buy a home with solar, you cannot claim the credit.
In the event you do not have enough tax liability to claim the whole credit you can roll over any of the solar credits into future years.
Unlike the EV tax credit, there is no income limit on the solar tax credit; everyone is eligible to receive the credit.
To claim the solar credit, simply add it to your annual federal tax return.

What the credit covers:

Cost of solar panels
Cost of installation, including permitting fees and inspection costs
All solar equipment, including inverters and all hardware
Solar storage batteries
Sales taxes

Some Recent Confusion

In addition to the increase and extension of the ITC, the Inflation Reduction Act also reinstated the Production Tax Credit and the terms have been creating some confusion for those interested in getting solar on their homes. This separate tax credit for using majority-US made components and union labor, is for large, commercial scale solar systems of 1MW or more and will not apply to residential solar systems. Learn more about what qualifies for the PTC here.

We’ve said it before, and we will keep saying it—There’s never been a better time for SOLAR!

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