Understanding the 30% Solar Tax Credit
The solar investment tax credit (ITC) is a 30% tax credit that you are allowed to claim in the form of a deduction from your income taxes (after any available rebates) off the overall gross system cost, including any necessary upgrades to the main panel box upgrades in order to go solar.
In August 2022, the Inflation Reduction Act increased the tax credit from 26% to 30% and extended it until 2032. It also renamed it the Residential Clean Energy Credit (although most people still call it the ITC or solar tax credit).
So if you purchased a solar system worth $25,000 in 2022, you can claim a $7,500 deduction on your 2022 taxes that you file in early 2023.
The new and improved solar tax credit also applies to battery storage, whether or not it’s connected to solar. So you can claim the tax credit for adding battery storage to an existing solar system or for battery storage that’s not connected to solar at all.
Tax Credits are different and more valuable than Tax Deductions
In simple terms:
Tax Deduction: reduces Taxable Income
Tax Credit: reduces Taxes due and in many cases, will increase your tax refund
Book Solar Analysis Appointment
How to use your Federal Tax Credit
In many instances, the 30% Tax Credit results in an additional IRS tax refund above and beyond what you normally receive. This results in Free Cash Flow in your pocket.Many homeowners will do one or more of the following:
- Put the money in your savings or investment account
- Use the money for another home project such as a new roof, new siding, bath, kitchen, etc
- Pay off other debt such as, credit cards or car loans
Homeowner Tax Return |
Tax Deduction Calculation |
Tax Deduction and Tax Credit Calculation |
|---|---|---|
|
Taxable Income
|
$100,000
|
$100,000
|
|
Tax Deductions for Mortgage Interest, Real Estate Taxes, etc
|
$30,000
|
$30,000
|
|
Total Taxable Income
|
$70,000
|
$70,000
|
|
30% Tax Bracket Due
|
$21,000
|
$21,000
|
|
Taxes Paid in your paycheck
|
$24,000
|
$24,000
|
|
Total Taxes Due or Refund
|
$3,000
|
$3,000
|
|
Add back your Solar Tax Credit on a 30K Investment
|
|
$9,000
|
Total New Refund |
|
$12,000 |