How Does the Inflation Reduction Act Impact Solar Power?

On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 into law. The Inflation Reduction Act of 2022 is a federal law which has the stated goal to curb inflation by reducing the deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy. The $739 Billion bill includes $369 Billion for Energy Security and Climate Change.

Energy Security and Climate Change.

It represents the largest investment in combating climate change ever passed by Congress — with the goal to reduce carbon pollution 40% below 2005 levels by 2030 and returning the U.S. to a leadership role in the global fight against climate change.

Incentives, totaling nearly $200 billion, will ramp up solar, wind, energy storage and energy efficiency on the grid. The act also addresses the largest source of climate pollution in the U.S.: transportation. One goal is to accelerate the adoption of electric vehicles through a consumer tax credit of up to $4,000 for used clean light-duty vehicles and $7,500 for new purchases.

Solar Power Incentives

That portion of the legislation aimed at promoting clean energy has a direct, beneficial impact on residential solar power systems placed in service between January 1, 2022, and December 31, 2032. Specifically, this legislation provides a 30% tax credit which can be applied to your federal income tax liability during this period. There is no dollar limit on those expenses.

Eligible Expenses:

• Expenses which are eligible for this tax credit include:
• Photovoltaic (PV) Panels (including cells used to power an attic fan).
• Associated contractor labor for onsite preparation, assembly, or original installation.
• Developer fees, permitting fees, and inspection costs.
• All associated equipment including wiring, inverters, and mounting equipment required to operate the solar system.
• Storage batteries (even if they are purchased a year or more after the solar system installation).
• Sales taxes on eligible expenses.

How it works

The tax credit can be to offset your federal tax liability. However, it cannot be used to generate a tax refund. For example, if you spend $25,000 on a solar power system, you would be entitled to a tax credit of $7,500. This credit is available in the year to installation is completed. Let’s assume your total tax liability were only $6,500 in the year you completed your solar power system installation. Your tax liability for that year would be reduced to zero. While you would not be eligible for a refund, you would have a carry-forward tax credit of $1,000 (the remainder) which could be used in subsequent years.

This tax credit last until December 31, 2032. In subsequent years it drops 4% per year to 26% in 2033, then 22% in 2034. The tax credit expires in 2035 under the current law.

Let SoL Energy provide a Free Consultation so you can see exactly how you can benefit from this recent legislation.

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