The Inflation Reduction Act Just Made Solar Power an Even Better Deal

The Inflation Reduction Act (IRA) that was signed into law last month contains a lot of good news for Americans who make the switch to clean and renewable solar energy.   

But, like any government legislation, figuring out what the 730-page bill means in simple terms can be a chore.

So, we thought it would be worthwhile to explain the generous new solar incentives it provides.

Renewed & extended tax credits 

The biggest news is that the Solar Investment Tax Credit (ITC) was both renewed and increased.

The ITC previously gave homeowners and businesses who transitioned to solar power in 2022 a 26% tax credit on the full cost of installation.

It was slated to drop down to 22% in 2023, after which it was supposed to be eliminated entirely.

The IRA provided an 11-year reprieve, making the solar tax credit available all the way through 2034.

Even better, the amount of credit you can claim has been increased to 30% for solar systems installed between 2022 and 2032.

That amounts to a $4,650 discount on the $15,500 average cost of installing a 6-kilowatt solar system in Pennsylvania.

How the ITC works

The ITC allows you to deduct 30% of the total cost of installing a solar system from your tax bill. 

And when we say you can deduct 30% of the total cost, we really mean it. Any of the following expenses count.

  • The cost of solar panels
  • Labor costs
  • The cost of all additional solar equipment, like inverters, wiring, and mounting hardware 
  • Permitting, inspection, and developer fees
  • Sales taxes on any of the above

Battery storage

The restrictions on when backup batteries are eligible for the ITC have also been loosened. Previously, only batteries charged by solar panels counted.

Now, you can deduct 30% of the full cost of installing a backup battery to power your home in emergencies irrespective of whether it’s connected to any solar panels.

Under the old rules, it wasn’t clear whether a battery installed after your solar system was already up and running would be eligible.

But since home backup batteries now qualify in their own right, there’s no question you can install a solar system but defer on getting a battery without risking any loss.

Should you choose to have one installed later, you'll still be able to take advantage of the full 30% ITC.

Carryover period also extended

Because the ITC is a credit rather than a rebate, you’re only permitted to deduct it from the federal income tax you owe.

That means to take full advantage of the solar ITC, you’ll need to owe the IRS at least as much as the amount it entitles you to.

But that’s where there’s even more good news. The ITC’s “carry back” period has also been extended from one year to three years.

So, even if you don’t wind up owing the IRS enough in the year your solar panels were installed to take the full 30% credit, you can retroactively deduct anything that remains from the taxes you paid for any of the previous three years.

Even better, the 30% solar tax credit can also be carried forward all the way through 2032.

The upshot is that pretty much everyone will be able to take advantage of the full 30% discount on going solar that the ITC now affords.

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