Joining forces with battery storage and solar power is a great strategy for eliminating your utility expenses and attaining energy autonomy. So the big question is, can batteries qualify for solar tax credits?
Absolutely, yes! The enactment of the Inflation Reduction Act has triggered the immediate implementation of the 30% Residential Clean Energy Credit. This tax credit covers costs associated with solar equipment and labor, inclusive of battery storage.
This enhanced solar batteries tax credit pertains to battery installations that were undertaken in 2022 and will maintain a 30% rate until 2032.
Let's delve deeper into how this incentive functions and how you can integrate it with your solar or battery installation.
Do remember, any tax-related decision should be discussed with your CPA or tax advisor beforehand. This piece is meant for informational purposes only.
So, do batteries definitely qualify for the new solar tax credit?
Yes, absolutely. We understand it's been a turbulent wait for a climate bill that boosts solar and battery incentives. However, the wait is over. Battery storage indeed qualifies for the 30% federal tax credit, as do solar, wind, geothermal heat pumps, and fuel cells.
The Inflation Reduction Act (IRA) was ratified into law on August 16, 2022. It explicitly outlines the Residential Clean Energy Credit for “qualified battery storage technology expenditure” under Section 13302.
In essence, the IRA modified the timeline for the previous tax credit, ensuring that it remains at 30% for solar and battery equipment “put into service” after December 31, 2021, and before January 1, 2033.
The 30% Residential Clean Energy Credit not only takes immediate effect, but it also applies retroactively to solar and battery storage installed anytime during 2022. Therefore, if you acquired solar and/or battery storage in 2022, your available federal tax credit increases from 26% to 30% of the total project cost.
Does All Battery Storage Qualify for the Federal Tax Credit?
Alright, we know that a 30% tax credit exists for solar battery storage. But what constitutes a “qualified battery storage technology expenditure”?
To qualify for the 30% tax credit, the battery storage must be:
- "Installed in association with a dwelling unit situated in the United States and utilized as a residence by the taxpayer"
- "Have a capacity of not less than 3 kilowatt-hours."
According to the legislation, the 3 kilowatt-hour minimum battery capacity doesn't come into effect until 2023. Given the average battery installation hovers around 10kWh, most batteries will comfortably surpass the minimum amount to qualify for the solar tax credit.
Moreover, there are no restrictions on the size, price, or tax credit qualifications. You're free to claim a 30% tax credit on as vast a battery system as you wish – although bigger isn't necessarily better. Let's explore how the federal tax credit application process works for battery storage.
Do standalone batteries qualify for the Residential Clean Energy Credit?
Starting from January 1, 2023, standalone battery storage (batteries not connected to solar panels) will also be eligible for the 30% Residential Clean Energy Credit.
Standalone batteries can serve as a backup energy source for homeowners who frequently experience power outages due to natural disasters and Public Safety Power Shutoffs. If you regularly endure short power outages, standalone batteries present a superior alternative to gas generators.
Standalone batteries can also help you save money by storing electricity when it's cheaper to use. Through Time-of-Use (TOU) rates, the price of electricity fluctuates throughout the day, peaking during high-demand periods (usually morning and evening). In some cases, the price difference between peak and off-peak times can be as much as 25 cents per kilowatt-hour — approximately $2.50 per day. Battery storage can help you shift grid usage from high-cost to low-cost periods, yielding substantial savings over time.
Is it possible to claim the tax credit for a battery if I've already claimed it for solar?
While the IRS and Department of Energy haven't yet issued guidelines on this, it seems homeowners will be allowed to claim the Residential Clean Energy Credit for adding battery storage to pre-existing solar systems.
For instance, if you invested in solar in 2022 and claimed the tax credit, you could add battery storage in 2023 and claim the tax credit for that as well.
How to Apply the Federal Tax Credit for Solar Battery Storage
Bear in mind, the Residential Clean Energy Credit is a nonrefundable credit that you can utilize to reduce your federal tax liability.
In essence, the tax credit is not a refund check you receive in the mail. Instead, it's a credit that you can apply to lessen your federal tax liability, starting from the same tax year your battery was installed and approved as operational by a government inspector.
Let's consider a few hypothetical scenarios:
Scenario 1: Your Tax Liability Exceeds Your Tax Credit
Suppose you spent $50,000 on a solar and battery installation in 2022. This makes you eligible for a $15,000 tax credit. Come tax season, if you have a $17,000 tax liability, you can apply the full $15,000 credit at once, reducing your liability to $2,000.
Scenario 2: Your Tax Credit Exceeds Your Tax Liability
If you purchased the same system as in the previous example, accruing the same $15,000 tax credit, but have a tax liability of only $8,000. You can use your Residential Clean Energy Credit to eliminate the $8,000 tax liability and carry the remaining $7,000 over to the next tax year.
The IRS currently states that the Residential Clean Energy Credit can be rolled forward for as long as it's active, which is until December 31, 2032. This video provides a basic rundown of utilizing your federal tax credit.
As always, consult your CPA or tax advisor before making any tax decisions. This article is for informational purposes only.
Is Solar Battery Storage Essential?
Many homeowners ponder whether acquiring a battery is truly necessary. The truth is, it depends on your individual needs and circumstances.
Every homeowner has unique reasons for investing in their system, and a battery can add significant value to a solar setup. A key advantage is having a reserve of energy to power your home during blackouts and Planned Safety Power Shutoffs (PSPS) that are becoming increasingly frequent as extreme weather events rise in number and severity.
There's also the perk of achieving energy independence. Pairing a battery with solar effectively creates your personal mini-utility.
Finally, in regions where net metering isn't provided by local utilities, battery storage can be used to store solar electricity for use at night or during periods of limited sunlight.
The Bottom Line
The majority of batteries installed between 2022 and 2032 will qualify for the solar tax credit expanded by the Inflation Reduction Act. The only criteria stipulated by the Inflation Reduction Act are that the battery must be installed in a taxpayer’s residence in the US, and the battery storage capacity must exceed 3 kWh.
The 30% tax credit can be utilized to decrease your tax liability and can be rolled over if it isn't completely used at once.
Even though this credit is available for the next 10 years, solar and battery storage represent long-term investments. Therefore, the sooner you invest, the sooner you'll begin to see a return on that investment.