The 2022 Inflation Reduction Act
On August 26, 2022, the Inflation Reduction Act (IRA) was signed into law by President Biden after passing both chambers of Congress. While we all wait for clarification and specifics to emerge from the Treasury, we will share what is known regarding installation of residential and commercial solar. Please be aware more details regarding criteria and qualifications will be forthcoming and defined by the U.S Treasury. As we learn more, we will update this blog article. For now, the information noted in this article has been collected and organized from the reference links noted below
Before reviewing specifics, we urge consumers to do their research, become knowledgeable, and don’t be afraid to question solar companies representing various tax credit incentives, discounts or leasing or loan options in their proposals. When a market is flourishing, it is not uncommon for people to have less than genuine intentions and only interested in exploiting loopholes and increasing profit. We recommend to always consult your tax professional when evaluating state or federal tax credit offerings to determine your eligibility and gain further understanding of the how they work
Residential & Businesses Solar – 30% Federal Tax Credit
The Investment Tax Credit (ITC) for Direct Ownership is extended and raised to 30% with the step-down schedule beginning in 2033. Direct ownership includes financing and cash purchasing but not a leasing agreement or other arrangement to purchase energy. Stand-alone energy storage is also eligible for batteries with at least 3 kWh (5 kWh commercial)2 of storage capacity starting in 20234. There is a provision in the bill which allows anyone who installed residential solar in 2022 prior to the bill to claim the 30% retroactively. The bill does not allow for a cash refund but does allot it to be rolled over to a subsequent year for those without enough tax liability.
For commercial ownership, until new guidance from the treasury on wage and apprenticeship requirements is defined, the rate is 30%.2
Domestic Content Adder for Solar or Battery Storage – Additional 10% Federal Tax Credit
The domestic content tax credit adder can be applied to battery storage and solar projects separately, allowing a solar array installation to meet the criteria and receive the additional 10% tax credit adder and vice versa.3
The domestic content requirement under 661.5(B) is satisfied if (i) 100% of any steel or iron that is a component of the facility was produced in the United States, and (ii) 40% of manufactured products that are components of the facility (i.e. solar panels, inverters, and electrical gear) were produced in the United States.1
In 2024 the manufactured product requirement begins to step up by 5% each year. Content requirements for U.S manufactured products and components will increase to 45% in 2025, 50% in 2026, and 55% in 2027 and beyond.2 A component is considered U.S. origin if it is manufactured in the U.S. regardless of the origin of subcomponents if it adds value and is beyond assembly.
The tax credit adder only applies to projects placed in commission starting in 2023. The project (solar or storage) must meet the criteria as a whole or not at all.
Other Federal Tax Credit Adders (Starting in 2023)
Energy Community – Additional 10% Federal Tax Credit. This adder is exclusively for former energy communities defined as brownfields and locations associated with fossil fuels since 2010. See the SEIA Inflation Reduction Act: Printable Summary for more details: https://www.seia.org/inflation-reduction-act-printer-friendly
Low Income Community – Additional 10%-20%. This adder is allocated to certain low-income communities or Indian land under a maximum size of 5 MW. To qualify the project is part of a low-income residential building project or low-income economic benefit project. See the SEIA Inflation Reduction Act: Printable Summary for more details: https://www.seia.org/inflation-reduction-act-printer-friendly
Tax Credit Transfer Benefit
The most dramatic change under the IRA is that the party claiming the federal tax credits can transfer such credits once to an unrelated party, and the resulting proceeds are not part of the taxable income of the transferring party. The ability to transfer or essentially sell tax credits will expand the opportunities for project owners to monetize the tax credits.3 More details regarding criteria will be forthcoming and defined by the U.S Treasury. Additional information on transferability can be found in the referenced links below.
*Note: More details regarding criteria will be forthcoming and defined by the U.S Treasury. Consult with your tax professional to learn more about how you can take advantage of tax credits and incentives. It is possible these guidelines may have changed, been altered from their sources or further definition introduced by various government agencies prior and/or following publication of this blog content.
REFERENCE LINKS
2 https://www.seia.org/inflation-reduction-act-printer-friendly
If you need additional information or have questions about the 2022 Inflation Reduction Act as it relates to either Residential or Commercial solar installation, contact us at Eagle Point Solar at sales@eaglepointsolar.com