ITC Step Down: Effects on Solar Installation

In August, the Inflation Reduction Act (IRA) increased the federal solar investment tax credit (ITC) from 30% for the next ten years.

That’s good news for homeowners that installed solar in 2022, because the they can claim the 30% tax credit instead of the 26% tax credit in place before the Inflation Reduction Act was signed.

It’s even better news for homeowners going solar in 2023, when the ITC was scheduled to step down to 22% before the signing of the IRA.

While the next tax credit is something to celebrate, solar customers may feel the effects of a logjam created by the old ITC step down schedule. We’ll explain what to expect and if your hoping to install solar in the latter part of 2022.

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The Effects of the ITC Step Down on Solar Installation

As we mentioned above, the ITC or Residential Clean Energy Credit is back at 30% for 2022 and here to stay until 2032.

But before the Inflation Reduction Act bumped it up, the ITC was scheduled to step down from 26% in 2022 to 22% in 2023.

federal solar tax credit before and after inflation reduction act

That’s a difference of $1,200 on a $30,000 solar project. Given the solar credit stepdown, homeowners raced to have their solar systems installed and inspected in by the end of 2022 in order to get the extra 4% on their tax credit.

The effect was very full schedules for solar installers and inspectors for late 2022. In Washington state, for example, some installers had their 2022 schedules completely booked by July and were scheduling 2023 installs six months in advance.

Timelines will vary from area to area, but in general, solar installers may be busier than usual in late 2022 based on lingering effects of the previous ITC step down schedule.

What to expect in 2023

Trying to predict the future is never a great idea. But let’s look at the tea leaves for 2023.

The pressure to get solar installed before the ITC step down is gone, but, as we learned during the pandemic, logjams take time to iron out.

Solar installers may be booking further ahead than normal well into 2023 — and that’s something to celebrate. With each solar installation the grid gets a little cleaner.

And what we may find in 2023 is that the pressure to install before the ITC step down is replaced with excitement over the 30% tax credit, and the savings solar can provide as energy prices soar.

We don’t claim to have a crystal ball at solar.com. In fact, the Inflation Reduction Act came as a surprise (albeit a welcome one). However, there are reasons to expect the residential solar industry to be very busy in the coming months and years.

The good news is that the 30% federal solar tax credit isn’t going anywhere. The not-as-good news is that homeowners may have a few extra weeks to dream about their solar system between signing their contract and having it installed.

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