Previously, homeowners and business owners that install solar energy systems were eligible for an Investment Tax Credit (ITC) of up to 30 percent of the cost of the installation. However, this credit did not apply to systems used to heat a swimming pool or hot tub, or systems that are leased. But if you’re thinking about installing a solar system, you should know that the Solar Tax Credit Extension for 2023 will provide you with even more incentive to make your dream of living in an energy-efficient home a reality.
Increased from 26% to 30%
Until recently, the federal solar tax credit was scheduled to go down to 22% in 2022. But Congress has recently enacted a new law that will extend it to 30% until 2033.
In addition to extending the solar tax credit, this new law also includes several other notable measures. Among them are tax incentives for community solar, electric vehicle purchases, and battery storage technology.
The most important one is the Inflation Reduction Act, which has the potential to drastically cut carbon emissions by 40% by 2030. The Inflation Reduction Act has the potential to save American taxpayers billions of dollars in taxes.
The Inflation Reduction Act was signed into law by President Joe Biden on August 16, 2022. Its impact will be profound. It includes $370 billion in renewable energy spending. It will also extend the residential clean energy credit to include battery storage technology.
Energy storage devices still eligible
Investing in energy storage devices can help you save money on your energy bill. However, there are some caveats. In order to claim the federal tax credit, you must own the system and taxable income must be met.
You should consult with a qualified tax professional to determine whether you qualify for the tax credit. You will need to fill out Form 5695 and attach it to your federal tax return.
To receive the full credit, you will need to purchase energy storage devices that store more than three kilowatt hours of power. These batteries can be placed in a stand-alone system or be part of a solar panel array.
The tax credit can be claimed retroactively and you can carry it forward to future tax years. There is no upper limit on the amount of the credit you can claim.
Commercial taxpayers may now choose a Production Tax Credit (PTC) instead of an ITC
Until December 31, 2023, taxpayers may choose between a Production Tax Credit (PTC) for solar energy or an Investment Tax Credit (ITC) for solar energy. This change comes in response to the enactment of the Energy Independence and Security Act. The Act extends the PTC and ITC through the year 2024, eliminates the phase-down, and expands the tax credits.
The ITC is a cash rebate based on the production of electricity from renewable resources. It operates similarly to the PTC in that it requires a facility to meet certain labor and wage requirements. For ITC projects, a certain percentage of the total construction labor hours must be performed by apprentices. The number of apprentice hours increases as time passes.
Bonuses for domestic content, energy communities, and low-income benefits
During the Energy Independence and Security Act, the ITC is extended to 2023 with bonuses for domestic content, energy communities, and low-income benefits. The tax credit is currently set at 30% of eligible costs. However, there are several provisions in the IRA that may affect the credit’s pricing.
The IRA offers enhanced ITCs to solar and wind projects that are located in energy communities and low-income census tracts. Additionally, there are bonus credits for clean energy projects that are sited in environmental justice communities and qualify for workforce requirements.
In addition to the base ITC, renewable energy projects that are sited in environmental justice areas can add additional percentage points to the base ITC. The added bonus will help the ITC to grow from 30% to 40%.
