Recently the United States Senate passed the Inflation Reduction Act. The bill, called H.R. 5376 – Inflation Reduction Act of 2022 covers a variety of topics like corporate taxes, healthcare, and sustainable energy options. But how does this bill change things for solar customers? Let’s dig into the solar tax credit and energy-saving details.
Solar Tax Credit for Consumers
There’s good news when it comes to solar tax credits. They have been increased from 26% to 30%. This means you can deduct 30% of the cost of your solar panel installation. This will include any installations in 2022 and extends to corporate tax credits as well. This program will run over the next decade and will run until 2032.
Under the previous plan, energy storage units were ineligible unless they were part of a solar installation. Now they will benefit from the 30% tax credit even if they aren’t connected to a solar array. Energy storage batteries will qualify for the credit as long as they are connected to a solar system even if solar systems are not charging them.
Coming up in 2025 the Investment Tax Credit will become a bigger technology credit. It will apply to emission reduction as well as solar projects. After 2032 the credit will begin to decrease, but that’s 10 years away, so hopefully, you’ll be taking advantage of the deduction well before then.
The 10% tax credit added for domestic sites
By purchasing products produced domestically, solar power projects that are eligible for 30% will be able to increase their tax credit by 10% to 40%. To qualify for the additional credit all of the iron and steel materials used in the solar panels must be manufactured in the USA. For solar systems, any electrical gear, inverters, and panels must be initially 40% manufactured in the USA. This percentage will most likely increase in the future.
Normally, for materials to be classified as Made in the USA they have to be made up of at least 55% domestic goods. The bill lists exceptions for some materials that may not be produced in enough quantity or are of unsatisfactory quality. The credit allows for these parts to be imported. Any materials that could increase the cost of a project by 25% would be allowed to be imported no matter the size of the project.
Clean electricity production tax credit
Traditionally, the wind industry has been eligible for a tax credit on a per kilowatt-hour basis. The solar industry was eligible for this credit as well before 2007. But now the Production Tax Credit applies once again to the solar industry.
As long as a solar power project meets the current requirements, it’ll get a tax credit of 2.5 cents per kilowatt hour during the first 10 years of the project’s existence. If a project doesn’t meet the current standards it will only earn 0.3 cents per kilowatt hour. In the future, the production credit will increase to adjust for inflation.
Domestic solar hardware manufacturing
There are tax credits for manufacturing different types of solar panels, racking parts, and inverters.
For solar modules the credits will include:
- 7 cents per direct current watt capacity for solar modules
- 40 cents for every square meter of polymeric backsheets
- $3 per kilogram for solar-grade polysilicon
- $12 per square meter for solar wagers
- 4 cents per direct current watt of capacity for solar cells
Here are the credits that would be applied per watt of alternating current for inverters:
- 11 cents for microinverters
- 6.5 cents for residential inverters
- 2 cents for commercial inverters
- 1.5 cents for utility inverters
- 0.25 cents for central inverters
Structural fasteners will receive $2.28 per kilogram and torque tubes used for racking will get 87 cents per kilogram.
Is there a 60% tax credit opportunity?
Technically, yes. Solar power projects that sell the electricity they generate via community solar projects to low-income households will receive an additional 10%. Considering the 30% tax credit base, 10% for the domestic component, 10% for being located in a former fossil fuel community, and 10% for selling electricity to assist low-income families… the tax credit could reach 60%!
Additional points about the Inflation Reduction Act for Homes in Colorado
Nationally, there will also be tax credits for heat pumps, electrical panels, and other items related to the solar energy industry. The bill also includes $7500 for the purchase of new electric vehicles and $4000 for used electric vehicles. Couples who earn less than $300,000 or individuals who earn less than $150,000 will be eligible for tax credits and could get a discount at the dealership. The Inflation Reduction Act also includes incentives for businesses and non-profits like schools, charities, and local government organizations.
There has never been a better time to go solar
If you’ve been considering adding solar power to your home or business, now is the time. Our mission at Steel City Solar is to provide the communities of Southern Colorado with honest, real solutions. We can help you reduce your consumption of fossil fuels and lower your energy bills long term.
Here at Steel City Solar, we believe in clean energy and integrity, and our award-winning team will do their best to help you meet your energy goals and reduce your carbon footprint. Give one of our solar professionals a call at 719-569-5166 or visit our website today and make your solar dreams come true!