The Inflation Reduction Act: What’s In It For YOU?
President Biden signed the Inflation Reduction Act (“IRA”) on August 12th, 2022. The bill contains a number of new and updated tax provisions as well as other climate and healthcare provisions that will certainly have far-reaching impacts on all of us. But what’s in it for you, a current or potential Scudder Solar residential customer?
Feel free to read the entire text of the 725-page bill (I probably will not be doing that), but specific to solar and related equipment, the bill added some new incentives to purchase electric vehicles and continued the credits for outfitting your home with solar panels and battery backup systems.
Most importantly, for residential solar installation (isn’t that why you’re here?), the IRA increased the Investment Tax Credit (“ITC”, IRS Code Section 25D for residential properties) to 30%, and that will stay in effect until 2033 when a step down comes back in to play. Previously this credit was on a decline to 0% by 2024, so this provides some consistency and longevity to the credit. Technically, the credit could be extended, increased, decreased, or removed entirely depending on future tax bills and administrations, but that is a problem for another day. For now, this means that residential solar and residential battery storage systems installed from January of 2022 onward would receive a 30% federal tax credit. As always, we ask you to confirm all of this with your tax advisor.
In addition to the residential credit, the IRA also provides for two new vehicle tax credits.
The first is a $7,500 credit for a new electric vehicle, and the second is $4,000 for a used one. This is where we get beyond our paygrade and suggest research and consulting with your tax advisor before you make a purchase. There are income requirements—no more than $300,000 AGI if you’re married filing jointly, requirements regarding the selling price of the vehicle—cars no more than $55,000 or trucks/SUV/vans more than $88,000. In addition, the credit makes requirements of vehicle and battery manufacturers that, as a consumer, we wouldn’t be responsible for but would affect the credit the consumer could receive. That’s where we’ll all have to wait and see if the auto manufacturers can catch up with where they purchase materials and physically manufacture the vehicles.
Lastly, the IRA revived a previously expired credit for adding energy efficient windows, doors, and appliances of up to $1,200 or 30% of the cost for the tax year installed. There is also language in the bill that would provide for rebates for the purchase of household appliances (heat pumps, stoves, clothes dryers, certain wiring, insulation, breaker box upgrades, etc). These rebates aim to reach lower to middle income taxpayers who would benefit more from receiving an upfront discount on these appliances rather than waiting to receive a credit with the tax refund the next year.
Bottom line (or, tl;dr as the kids would say), the ITC is now 30% for residential projects installed after January 1, 2022, and we can expect that to stay at that level for the next 10 years. This applies to residential solar photovoltaic projects, battery storage projects, and some auxiliary work like EV Charger installation, and possibly other items at the direction of your tax advisor. This makes it a great time to look into purchasing solar panels and a battery system for your residence, and that is in addition to the savings you’ll likely see on your monthly utility bill.
For more information on the Inflation Reduction Act, please visit https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/16/fact-sheet-how-the-inflation-reduction-act-builds-a-better-future-for-young-americans/
Martha Gustavson, Scudder Solar
