What Is the Federal Solar Tax Credit?
Installing solar panels earns you a federal tax credit. That means you’ll get a credit for your income taxes that actually lowers your tax bill.
You can qualify for the ITC for the tax year that you installed your solar panels as long as the system generates electricity for a home in the United States.
How Does the Federal Solar Tax Credit Work?
When you purchase a solar photovoltaic (PV) system during the tax year, you are eligible for a Federal Solar Tax Credit that you can claim on your federal income taxes for a percentage of the cost of the system.
The ITC will now provide 30% for systems installed in tax years 2022 through 2032. So, when deciding whether to install solar panels, factor in a 26% to 30% discount.
It’s essential to note that you can only claim the credit once. If the taxes you owe that year are less than the credit you earned, your credit will roll over to the following year. Also, remember that the credit is a deduction, not a refund.
Do Batteries Qualify for the Solar Tax Credit?
On Aug. 16, 2022, the IRA adds Section 48(a)(3)(A)(ix) to create an ITC for standalone energy storage technology with a minimum capacity of 3 kWh. Energy storage technology includes batteries, but it also applies more broadly to any energy storage technology that receives, stores and delivers energy for conversion to electricity, or to most technology that thermally stores energy (excluding swimming pools, combined heat and power systems, and building structural components). Energy storage installations that are placed in service after Dec. 31, 2022, and begin construction prior to Jan. 1, 2025, are entitled to the existing ITC under Section 48(a). Energy storage installations that begin construction after Dec. 31, 2024, will be entitled to credits under the technology-neutral ITC under new Section 48E (discussed below).
And it specifically addresses the Residential Clean Energy Credit for “qualified battery storage technology expenditure”
How much can I get from the battery storage tax credit?
The Inflation Reduction Act enacted a 30% Residential Clean Energy Credit, applying to both the battery cost and labor, including installation fees.
Can I apply for this battery tax credit if I don't have solar power system?
Beginning on January 1, 2023, standalone battery storage (batteries that aren't connected to solar panels) will also qualify for the 30% Residential Clean Energy Credit. So if you only purchase some batteries for energy backup, don't worry, you also can have opportunity for this apply if meet the requirements that we're going through below.
Does all battery storage qualify for the Federal Tax Credit?
To qualify for the 30% tax credit, battery storage must be:
-Installed in connection with a dwelling unit located in the United States and used as a residence by the taxpayer
-(Have) a capacity of not less than 3 kilowatt hours.
And notice that there are no maximum size, price, brand, manufacture or tax credit qualifications. So no matter your battery are made by US or other country, you can enjoy a 30% tax credit on as large of a battery system as you’d like.
How to Claim Solar Tax Credit？
The Residential Clean Energy Credit is a credit that lowers your federal tax liability, but it's not a check. It reduces the amount you owe in federal taxes starting in the tax year when your battery is installed and operational, as confirmed by a government inspector.
Here's a simple guide:
- Check Eligibility: Consult your tax advisor to confirm if you qualify for the credit and have enough tax liability to use it.
- Complete IRS Form 5695: This online form is for claiming renewable energy credits. Find it on the IRS website and follow the instructions provided.
- Apply on Form 1040: If eligible and you've correctly filled out Form 5695, use the total credit from that form on your Form 1040 to reduce the amount of tax you owe.
Most batteries installed between 2022 and 2032 qualify for the solar tax credit under the Inflation Reduction Act. To be eligible, the battery must be installed in a U.S. taxpayer's residence and have a storage capacity exceeding 3 kWh. The 30% tax credit can reduce your tax liability and is applicable over the next 10 years. However, the credit rate decreases over time: it stays at 30% until Dec. 31, 2032, then drops to 26% in 2033, and further to 22% in 2034. The credit is not available from 2035 onwards.
Always consult with your tax professional to check if you qualify for tax credits based on your unique situation. Mango Power does not guarantee any tax credits for our products. The information we provide is for educational purposes only and is not legal or professional tax advice. It should not be your sole source of information for making decisions about purchases, investments, taxes, or any other actions. For accurate guidance, consult a tax professional.