Federal and Local Tax Incentives Supporting Solar and Energy Efficiency

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The Inflation Reduction Act offers excellent incentives for adopting solar energy as well as preparing your home for better energy efficiency. In this blog, we cover some of the tax incentives you have to look forward to in the next decade. Keep in mind, these are just some of the tax incentives that support solar adoption, home upgrades, and electric vehicles. For a better understanding of what tax credits you may qualify for, we always recommend consulting a trusted tax advisor.

Solar Investment Tax Credit for Homes

The solar investment tax credit, or federal solar tax credit, allows you to deduct up to 30% of the costs of your solar energy system from your federal taxes for systems installed between 2022 and 2032. Here’s a breakdown of how it works:

  • Up to 30% tax credit for systems placed in service between 2022-2032

  • Up to 26% tax credit for systems placed in service in 2033

  • Up to 22% tax credit for systems placed in service in 2034

    • Tax Credit includes all storage systems of at least 3kWh

    • Battery-only projects (such as retrofit) are also eligible to receive the 30% federal income tax credit starting in 2023

How is the tax credit applied?

Taxpayers with residential solar systems can apply a credit to their federal income tax return at the end of the year in which their system went into service based on the total price of the system. The solar tax credit is not refundable, but can still be carried to the subsequent year if the full amount is not used in full that tax year.

Solar Investment Tax Credit for Businesses

The Investment Tax Credit gives businesses access to a 30% tax credit but certain provisions must be met in order to qualify for the full amount. For example, systems over 1 megawatt must adhere to certain wage and apprenticeship requirements to be eligible.

There is a 10% bonus credit eligible to businesses that purchase systems built with U.S. manufactured materials. That allows some projects to qualify for a 40% tax credit.

The New Mexico Solar Tax Credit

The New Mexico Solar Tax Credit provides a 10% tax credit with a savings value up to $6,000. A business owner or homeowner who installs a solar energy system on or after March 1, 2020 is eligible for this non-refundable tax credit. Keep in mind, the solar tax credit has an annual allotment of $12,000,000 and is allocated on a first come, first serve basis. All the more reason to act fast!

Tax Credits for Home Energy Improvement Upgrades

As it stands currently, households are eligible for an up to 10% tax credit for insulation and energy efficiency improvements. There is a potential $300 tax credit for the purchase of energy-efficient heating and cooling equipment.

Beginning in 2023, certain energy efficiency improvements will be eligible for a 30% tax credit. Families can claim an up to $1,200 tax credit annually for energy efficiency improvements in the home. For electric heat pumps, there is a credit of up to $2,000. Home energy audits conducted by an inspector are eligible for an up to $150 credit.

  • Rebates up to $4,000 are available for qualifying households while low-income households can receive up to $8,000 for home efficiency upgrades with 100% of the costs covered for installing electric appliances. Rebates cover heat pumps for water heaters, heat pumps for heating and cooling, electric stoves or ovens, electric heat pump clothes dryers, an upgrade to circuit breaker boxes, improvements to ventilation, and improvements to wiring.

How about pairing an electrical vehicle with that energy-efficient, solarized home?

As of now, there is a federal tax credit of up to $7,500 toward the purchase of a new electric vehicle. Certain stipulations apply; for example, the vehicle must be assembled in North America and must be purchased or delivered by December 31, 2022. This federal tax credit also applies in 2023 with the same stipulations. For previously owned electric vehicles, there is a tax credit of up to $4,000 so long as the vehicle is at least two years old and is priced at $25,000 or less.

For more of the fine print and a list of vehicles that qualify for these tax credits under the IRA, check out this link.

Considering making the switch to clean solar energy and taking advantage of the new tax incentives? Request a proposal from Positive Energy Solar today!

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