30% Federal Solar Tax Credit Extended Through 2032
In an unexpected yet welcome move, the Inflation Reduction Act of 2022 increased the solar tax credit t0 30% and extends it until the end of 2032.
This is huge news for homeowners, as this tax credit — officially known as the Residential Clean Energy Credit — is the greatest financial incentive available for solar and battery storage projects. At 30%, the tax credit is worth $7,500 for a $25,000 solar system — effectively knocking the price down to $17,500.
The credit was previously at 26% for systems installed in 2022 and scheduled to step down to 22% in 2023 before going away entirely in 2024.
Better yet, Americans that installed solar in 2022 expecting a 26% credit will now be eligible for 30%. That’s an extra $1,000 in tax credit for purchasing a $25,000 solar or battery system.
What is the Solar Tax Credit?
The Residential Clean Energy Credit, also known as the Investment Tax Credit (ITC), is a tax incentive worth 30% gross solar system cost.
The only requirements are that:
- You own the system by purchasing your solar via cash or a solar loan (lease or PPA financing cannot claim the tax credit)
- You have an income tax liability, which is what this incentive reduces
Note, if your 30% tax credit is $6,000 total, and you only have $5,000 in personal income taxes one year, you can roll over the remaining $1,000 to next year’s income taxes.
This incentive has been huge for home and business owners since 2005 as part of the Energy Policy Act. The federal government has already extended the incentive expiration date three times before. The most recent extension in 2020 added a 26% extension until 2022 and “step down” schedule that gradually phases out the credit over a few years.
The Inflation Reduction Act Solar Tax Credit Step Down Schedule
With the Inflation Reduction Act (IRA) now law, the solar tax credit doesn’t begin stepping down until 2033.
Here’s the new Residential Clean Energy Credit step down schedule compared to the old schedule:
Here’s a table of the ITC step down:
How do I make sure I’m eligible to claim the Residential Clean Energy Credit?
To qualify for the 30% Residential Clean Energy Credit, you’re solar system needs to be installed and deemed operation by a city inspector in any of the tax years 2022-2032. The 30% credit applies retroactively to systems installed in 2022 when the credit was still at 26%.
Even though physically installing a solar system usually does not take more than a single day, many homeowners do not realize that a solar project may take weeks to complete after contract signing. This is due to factors such as permitting, financing approval, utility approval, and so on.
While you don’t have to worry about the tax credit stepping down for another 10 years, there are plenty of reasons to install solar sooner rather than later. First, the sooner you install, the sooner you will see a return on investment. Second, net metering policies are subject to change over time, so it’s best lock net metering while its available.
How big of a difference is a 26% tax credit versus a 30% tax credit?
The Investment Tax Credit is applied to your solar array’s gross system cost, so the amount you receive is dependent on the amount of solar you’re purchasing. The bigger system, bigger credit.
Here’s a quick example of the difference in a 26% credit versus a 30% credit for a $27,000 solar system.
At the full 30% level, your credit would be $8,100, compared to $7,020 at 26%.
That’s a savings difference of $1,080 compared to the previous year.
|Year||Gross Solar Cost||Credit %||Credit Amount||Net Solar Cost|
A thousand extra dollars is a nice bump to your tax refund and a great jumpstart to your solar savings.
How do I claim the tax credit?
Disclaimer: This content is for informational purposes only. Please consult with a CPA or Tax Advisor before filing.
To claim your project tax credit when filing taxes, complete IRS Form 5695 – Residential Energy Credits — like so:
For an in-depth explanation of filing the credit, follow our full step-by-step guide here. Of course, consult a licensed tax professional for all tax advice.
The bottom line
With utility electricity prices surging, going solar was already a means to energy cost savings for many Americas. With the solar tax credit increasing from 26% to 30%, the savings increase and payback periods decrease — making solar even more worthwhile.
While the tax credit is scheduled to remain at 30% through 2032, solar is a long-term investment. So, the sooner you go solar, the sooner you start saving.
Frequently Asked Questions
How does the solar tax credit work?
The Residential Clean Energy Credit is a dollar-for-dollar tax credit worth 30% of the total cost of solar and/or battery storage expenditures. As a non-refundable tax credit, it lowers your tax liability on your federal tax return. If you do not have sufficient tax liability, the tax credit can be rolled over into future years.
In order to qualify, you must purchase (not lease) the solar system and it must be installed and deemed operational by a city inspector. If the system was installed in 2023, you can file for the Residential Clean Energy Credit on your 2023 tax return filed in 2024.
How do you claim the solar tax credit?
The solar tax credit can be claimed on IRS Form 5695 for Residential Energy Credits. Consult a licensed tax professional for advice regarding claiming the Residential Clean Energy Credit.
Is the solar tax credit a one-time credit?
The Residential Clean Energy Credit can only be claimed once per solar system. However, if the value of the credit exceeds your tax liability, you can roll it into future tax years.
The Residential Clean Energy Credit also applies to battery storage, and can be claimed if you add battery to an existing solar system or — as of January 1, 2023 — on it’s own.