With its $369 billion in climate and clean energy investments, the new Inflations Reduction Act is the largest, most ambitious climate based legislation Congress has passed. The bill will reduce U.S. greenhouse gas emissions some 40% below 2005 levels by 2030, a big step toward President Biden’s goal of cutting them in half by 2030. It will make a difference in people’s lives, cutting energy costs and creating high-quality jobs.
In general the bill includes:
- A nationwide program to reduce methane emissions. (Cutting methane emissions is the fastest way to slow the rate of global warming today.)
- More than $135 billion for clean energy tax credits to ramp up solar and wind power. This could save households $500 a year in energy costs.
- Tax incentives to help jumpstart adoption of electric vehicles.
- $60 billion for environmental justice — assisting communities that have long borne the brunt of environmental pollution.
- $21 billion to help U.S. farmers and rural communities cut emissions and make food production more resilient to climate impacts we can’t avoid.
- $2.6 billion to make coastal regions more resilient in the face of extreme weather and sea-level rise.
For home solar owners this will bring some enhanced benefits –
- The tax credit for home systems will go back to 30% through 2033. It is also retroactive for any systems installed in 2022.
- If you already have a system and did not purchase a battery, the new law will now allow purchase of batteries to qualify for the 30% (previously you had to purchase both panels and battery at the same time). This will give existing solar owners an incentive to become more grid independent.
More details on the home solar arrays are below.
Section 25D Investment Tax Credit for Direct Ownership Solar (cash sales and loan-financed sales to homeowners)
The personal income tax credit for the installation of solar energy property is extended and raised to 30% with the step-down beginning in 2033 when it drops to 26%. Stand-alone energy storage also becomes eligible for this credit for batteries at with at least 3 kilowatt-hours (kWh) of capacity.
Investment Tax Credit for Third-Party-Owned Residential Systems
The stand-alone battery credit only applies to expenditures made after December 31, 2022. There is no direct pay or refundability. It continues to function as it has in the past. Third-party-owned (TPO) residential systems are financed and receive the ITC via the business tax code. As before, a system is directly owned by an individual taxpayer and claims the personal tax credit or is TPO and has the tax credit claimed by the third-party owner, not both.
Section 25C Investment Tax Credit for Clean Energy Property Extended at 30% through 2032
Beginning with property placed in service after 2022, lifetime cap replaced with an annual cap of $1,200 except for heat pumps, heat pump water heaters, biomass stoves and biomass boilers which are capped at $2,000 in aggregate. Credit also applies to improvement to or replacement of a panelboard, sub-panelboard, branch circuits or feeders that have capacity of at least 200 amps and are installed to enable the “installation or use” other eligible property under this Section 25C.
Residential Efficiency and Electrification Rebates
The IRA provides $4.3 billion to State Energy Offices to establish rebates for a variety of home energy upgrades under the Home Owner Managing Energy Savings (HOMES) rebate program. Rebates for home energy retrofits up to the lesser $8,000 per home or 80% of project cost if the project saves at least 35%. Lesser amounts available if projects save less than 35%. Multi-family rebates are also supported with different rebate amounts. Caps can increase for low- and moderate-income families with approval of the Secretary.
- For retrofit projects modeled energy savings at least 20% and up to 35%, the lesser of $2,000 or 50% of project costs
- For retrofit projects modeled energy savings more than 35%, the lesser of $4,000 or 50% of project costs
- For measured energy savings, of at least 15%, an amount scaled relative to average home energy use in the state where the project is installed where $2,000 would awarded for 20% energy savings, or 50% of project cost
- For retrofit projects modeled energy savings at least 20% and up to 35%, $2,000 per dwelling unit and maximum of $200,000 per multifamily building
- For retrofit projects modeled energy savings more than 35%, $4,000 per dwelling unit and a maximum of $400,000 per multifamily building
- For measured energy savings, of at least 15%, an amount scaled relative to average home energy use in the state where the project is installed where $4,000 would awarded for 20% energy savings or 80 of project cost.
More details to come in our next newsletter on qualifying and applying for the tax credits.