Inflation Reduction Act: what it means for home solar

President Biden signed the IRA into law this week, which improves tax incentives for renewable energy, energy efficiency, and electric vehicles. Here's what this new law means for home solar.

Breaking news

After the death of the Build Back Better bill, a pared back climate bill that also died, machinations in the senate, and an unexpected last minute back-from-the-dead effort, President Biden signed the Investment Reduction Act this week.

It’s being called the largest investment in combatting climate ever and the most significant environmental legislation since the Clean Air Act.

The IRA covers a large swath of things intended to lower the cost of energy and prescription drugs, of which are outside the scope of this blog. However, the federal tax incentive for solar has played a big role in the rapid adoption of solar energy. Without intervention by Congress, that tax credit was set to drop to 22% next year and disappear completely for homeowners the year after that.

Fortunately, the IRA both increases the tax credit and extends it. For homeowners who are thinking about going solar, this is a big flippin’ deal.

This is a BFD, according to President Obama (Twitter)

What does the Investment Reduction Act do for home solar tax credits?

The IRA increases the solar investment tax credit to 30% and doesn’t start to phase out the credit until 2033. This tax credit works the same way it did before, so homeowners will still file Form 5696. (You can read our article on the solar ITC for more details.)

Previously, the residential solar tax credit was 26%, set to drop to 22% in 2023, and was going to expire in 2024.

One important detail is that any installation installed after January 1, 2022 will qualify for the 30% credit. This means that if you just installed your system this year, you didn’t miss out on a 4% tax credit increase.

The tax credit extension also means that homeowners don’t have to rush to complete their installation before getting hit with a lower tax credit next year.

Small commericial installations - those under 1 megawatt AC - also get the 30% tax credit.

When do solar tax credits expire under the IRA?

Homeowners now have the full 30% tax credit available until 2032. The tax credit will drop to 26% in 2033, 22% in 2034, and 0% in 2035.

For commercial installations, the 30% tax credit is extended until 2033, dropping to 22.5% in 2034, 15% in 2035, and will be phased out in 2036.

Home batteries get the tax credit too

While home storage batteries, which are being installed more frequently by solar homeowners, have been eligible for the solar tax credit, the rule around that was never formalized in the law itself. The IRS made it clear that batteries could qualify, but only in a note published in 2018.

The IRA helpfully clarifies that home battery storage does indeed qualify for the 30% tax credit, with the caveat that the system must have a capacity of not less than 3 kilowatt-hours.

Because the smallest lithium battery that’s aimed at the solar market is the Enphase IQ3 with a capacity of 3.36 kWh, all the mainstream batteries will meet the requirement for this credit.

You can read more about battery rebates in this article.

There’s lots more too

The solar incentives are just part of what’s in the IRA. It also includes provisions for energy efficiency upgrades, installing green appliances like heat pumps, and even upgrading your electric panel to support the increased load that comes with electrification.

There’s also changes in the tax credit for electric vehicles, which are intended to support domestic vehicle and battery manufacturing. Some EV manufacturers will benefit in the short term, while others will see their EV tax credits go away.

These are all pretty big topics that we may cover in a future article. For now, the home solar industry has a lot to be thankful for with the passage of the IRA.

#Legislation #Incentives #News

Save 30% or more on home solar with current incentives

Photo of a solar home.

Use our calculator to get a financial payback and solar performance estimate customized to your home, including federal, state, and local incentives.

When you’re ready, fill out our form to get a home solar quote from a local SunPower installer.

Related stories:

California's new net metering rules (NEM 3): frequently asked questions

New rules in California won't kill rooftop solar, but will reduce the return on investment for many. Here's some answers and tips on how to make solar viable for your home.

Mission Solar expands San Antonio factory to 1 gigawatt

One of a just a handful of American solar panel manufacturers, Texas-based mission solar announced a 700 MW expansion of its factory.

Going solar in Texas: a consumers guide

Electricity prices in Texas have gone up 70% since 2021. Because of inflation, war, and the need for infrastructure upgrades, Texans should plan for ongoing price shocks. Going solar can help.

Rhode Island solar incentives and rebates (2022)

With the help of generous state incentives, Rhode Island is one of the best states to install solar panels on your home

Can you get a tax credit for solar panels?

Tax credits can help make solar panels a great investment for homeowners. Fortunately, there many federal and state credits available.

Can an HOA prohibit solar panels?

Homeowners associations can have bylaws that can dictate the color of your house or ban you from decorating your lawn with pink flamingos. Sometimes they may also want to ban solar panels, but many states have laws to prevent this.

Latest attack on net metering in California defeated - for now

The bill AB-1139, supported by California's investor-owned utilities, was defeated in the state legislature. Net metering in California is safe for now, but don't expect the utility companies to give up the fight.

Arizona solar tax credits and utility rebates (2020 edition)

If you’re an Arizona homeowner who’s thinking of going solar, be sure to learn about the significant incentives that are available.

California solar tax credits and incentives - the complete guide (2020 edition)

While there is no state-level income tax credit for solar, Californians have several federal and local incentives they can take advantage of.