As written in the Inflation Reduction Act of 2022, the tax credit will begin at 30% and step down to 26% in 2033 and 22% in 2034.
In a surprise victory for the solar and clean technology industries, Senator Joe Manchin and Democrats reached an agreement on a reconciliation bill, dubbed the Inflation Reduction Act of 2022. The bill includes $370 billion in spending for renewable energy and climate measures.
One of the most impactful provisions in the bill, which can be read in full text here , is the long-term extension of the Investment Tax Credit, which has been instrumental in launching the solar industry we know today. The bill calls for a 10-year extension at 30% of the cost of the installed equipment, which will then step down to 26% in 2033 and 22% in 2034. The tax credit applies to residential adopters of solar technology.
The 30% credit also applies to energy storage whether it is co-located or installed as standalone energy storage. 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 on the year, it would be paid as a cash refund. This provision was not included, which hampers 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.
This has been edited to properly explain the mechanism of refundability.
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If this makes it through the house and gets signed into law by the President, this will keep the ball rolling on residential and commercial solar panels systems as well as adoption of energy storage upgrades. 1.3 million California homes used this federal tax credit to provide lower costs to rooftop solar and cutting it back, as was planned for 2023 and 2024 was going to hurt the industry and the homeowners who have not yet been able to afford solar because of the pandemic economic problems.
True. And you gotta love house Newsome, Brown and other State officials take credit for improvements paid for by the Federal Government. They do it with a straight face, and get credit for the green initiative.
Without the tax liability rollover, this only benefits the rich. Hopefully that gets fixed considering how much emphasis there is for low and middle incomes in this bill.
I was thinking he same thing. Below though it states there is a “refundability” clause which might mitigate that as long as “developer” is classified as “private consumer”.
Yes, indeed. I’m seeing different things about how long you can carry forward the credit. At the very least some official clarity would be appreciated.
Yeah, this may end up screwing me over really, really badly. I just installed a $50,000 solar array about four months ago, with the understanding that I would get back 26% as a Federal tax credit; which would be $13,000. My Federal tax for the year runs in the low $5,000 range, so it will take three years to get the full tax credit. If they make this new law applicable to solar installed in 2022 and do not include the ability to carry the remainder forward, they are screwing me over AFTER THE FACT to the tune of around $8,000.
Federal tax or not. There are many states that with the little to no buy back on net metering still makes it financially none feasible. Customers should get full credit for all over production on their self generated power that Can carry from month to month.
For me and others with either battery storage or EV’s or both, the net metering is no longer needed to pay off the PV system. The savings in gasoline and diesel alone are more than enough. With multiple drivers, we charge all our vehicles from solar. For an average 12,000 mile driver with a 30 mpg car, this amounts to 400 gallons of fuel saved, or about $2,000 per year!
Your definition of refundability is mistaken. This is from the energy.gov website:
This is a nonrefundable tax credit, which means you will not get a tax refund for the amount of the tax credit that exceeds your tax liability. Homeowners may get a tax refund at the end of the year due to the tax credit, if the reduction in tax liability means there was overpayment during the year. This can often occur when employers deduct taxes for employees over the course of the year. However, such refund is still limited by the taxpayer’s total tax liability. However, you can carry over any unused amount of tax credit to the next tax year.
Hello, thank you for this correction. The article has been updated.
This is GREAT news! I’m in the process of getting more panels added, and I wanted to add some storage and a heat pump. This bill has tax credits for all of it.
Below though it states there is a “refundability” clause which might mitigate that as long as “developer” is classified as “private consumer”. Where do you see this stated?
I have not yet finalized my solar install, but I am already under contract. The purchase has not yet been made. In the engineering phase. I rushed to get the 26%. I wonder if they will make it retroactive for 2022 as well. That 4% is a substantial amount for someone in the middle class. I’m not “green” by a long shot, but I really supportive of affordable renewable. Either way, this is a big win for a solar future!
Ryan – Love to hear your thoughts on proposed Bill Section 13102(d), which appears to reduce the ITC for commercial solar PV from 30% to 6% only through 2025.
Hi Art, we are digging into this now. My checks tell me that there are adders that boost the credit significantly beyond that 6% figure, and that in effect, if a prevailing wage is paid, that the rate is 30%. Working on clarifying the specifics.
Thanks – Commercial/industrial solar industry killer at 6%…
I installed 12 panels 10 years ago and claimed the fedreal tax credit on the system. Can I add 12 panels and microinverters and get the 30 percent tax credit on them? I believe in the past the tax credit was a one time credit.
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