Do Batteries Qualify for the Solar Tax Credit in the Inflation Reduction Act?
Pairing battery storage with solar is a means of ditching your utility bills and becoming energy independent – but is do batteries qualify for the solar tax credit?
Absolutely! The signing of the Inflation Reduction Act put into immediate effect the 30% Residential Clean Energy Credit, which applies to the cost of solar equipment and labor including battery storage.
This new and improved tax credit for solar batteries applies to battery projects installed in 2022 and remains at 30% through 2032.
Let’s dive in to see how this incentive works and how you apply it to your solar or battery installation.
As with any tax decision, please consult your CPA or tax advisor before filing. This article has been prepared for informational purposes only.
First off, are we sure batteries qualify for the new solar tax credit?
Yes, it was quite the ride waiting for a climate bill that would expand solar and battery incentives. But the ride is over and battery storage definitely qualifies for the 30% federal tax credit, in addition to solar, wind, geothermal heat pumps, and fuel cells.
The Inflation Reduction Act (IRA) was signed into law on August 16, 2022 and it specifically addresses the Residential Clean Energy Credit for “qualified battery storage technology expenditure” in Section 13302.
Essentially, the IRA amended the schedule for the previous tax credit so it would remain at 30% for solar and battery equipment “placed in service” after December 31, 2021 and before January 1, 2033.
Not only is the 30% Residential Clean Energy Credit effective immediately, it also applies retroactively to solar and battery storage installed any time in 2022. So if you purchased solar and/or battery in 2022, your available federal tax credit increases from 26% to 30% of the gross cost of the project.
Related reading: Solar Rebates and Incentives
Does All Battery Storage Qualify for the Federal Tax Credit?
OK, so there is clearly a 30% tax credit for solar battery storage. But what counts as a “qualified battery storage technology expenditure?”
To qualify for the 30% tax credit, battery storage must be:
- “Installed in connection with a dwelling unit located in the United States and used as a residence by the taxpayer”
- “(Have) a capacity of not less than 3 kilowatt hours.”
According to the bill, the 3 kilowatt-hour minimum battery capacity took effect in 2023. Considering the average battery installation is closer to 10kWh, most batteries will easily exceed the minimum amount to qualify for the solar tax credit.
And notice that there are no maximum size, price, or tax credit qualifications. You can enjoy a 30% tax credit on as large of a battery system as you’d like – but bigger isn’t always better. Let’s see how applying the federal tax credit for battery storage works.
Related reading: How Do Solar Batteries Work?
Does standalone battery qualify for the Residential Clean Energy Credit?
Beginning on January 1, 2023, standalone battery storage (batteries that aren’t connected to solar panels) also qualify for the 30% Residential Clean Energy Credit.
Standalone battery can serve as a backup energy source for homeowners that face frequent power outages due to natural disasters and Public Safety Power Shutoffs. If you face frequent, short outages, a standalone battery is a great alternative to a gas generator.
Standalone battery can also help you save money by storing electricity for when it’s more affordable to use. Through Time-of-Use (TOU) rates, the price of electricity changes throughout the day and can be significantly more expensive during peak demand (typically morning and evening). In some instances, the price difference between peak and off-peak periods can be 25 cents per kilowatt-hour — or roughly $2.50 cents per day. Battery storage can help you shift grid usage from high- to low-cost periods and add up to substantial savings.
Can I get the tax credit for battery if I already used it for solar?
Although the IRS and Department of Energy have yet to issue guidance on the matter, it appears homeowners will be able to claim the Residential Clean Energy Credit for adding battery storage added to existing solar systems.
For example, if you purchased solar in 2022 and claimed the tax credit for it, you could add battery storage in 2023 and claim the tax credit for that, too.
Applying the Federal Tax Credit for Solar Battery Storage
It’s important to note that the Residential Clean Energy Credit is a nonrefundable credit that can be used to lower your federal tax liability.
What does that mean? It means the tax credit is not a check that comes in the mail. Rather, it’s a credit that can be used to reduce your federal tax liability beginning in the same tax year that your battery was installed and deemed operational by a government inspector.
Let’s run a few example scenarios:
Scenario 1: Your Tax Liability Exceeds Your Tax Credit
Let’s say you spent $50,000 on a solar and battery installation in 2022. You would be eligible for a $15,000 tax credit. Then when tax season rolls around you have $17,000 in tax liability. The full $15,000 credit can be applied at once to reduce that liability to $2,000.
Scenario 2: Your Tax Credit Exceeds Your Tax Liability
Let’s say you bought the same system as above and received the same tax credit for $15,000. However, in this scenario you only have $8,000 tax liability. You can use your Residential Clean Energy Credit to bring down the $8,000 tax liability, and then you can carry over the remaining $7,000 to the next tax year.
The IRS currently states that the Residential Clean Energy Credit can be carried forward for as long as it’s active, which is until December 31, 2032. This video explains the basics of using your federal tax credit.
As with any tax decision, please consult your CPA or tax advisor before filing. This article has been prepared for informational purposes only.
Is Solar Battery Storage Necessary?
It’s natural to wonder whether or not getting a battery is needed. And honestly, it depends on your situation and needs.
Each homeowner will have different reasons for getting their system, and a battery brings a lot of additional value to a solar system. The main benefit is having a reserve of energy to power your home through blackouts and Planned Safety Power Shutoffs (PSPS) that are becoming more common as extreme weather events increase in frequency and intensity.
There’s also the benefit in becoming energy independent, as pairing a battery with solar essentially creates your own mini utility.
Finally, in areas where net metering isn’t available through local utilities, battery storage can be used to bank solar electricity to be used at night and when sunlight is hard to come by.
The bottom line
A vast majority of batteries installed between 2022 and 2032 will qualify for the solar tax credit expanded by the Inflation Reduction Act. The only qualifications specified by the Inflation Reduction Act are that the battery must be installed in a taxpayer’s residence in the US, and the capacity of the battery storage must exceed 3 kWh.
The 30% tax credit can be used to reduce your tax liability and can be carried forward if it’s not all used at once.
Even though it’s available for the next 10 years, solar and battery storage are long-term investments, so the sooner you invest, the sooner you’ll enjoy a return.
