The Inflation Reduction Act of 2022, currently moving through Capitol Hill, has been called the most ambitious climate bill in U.S. history by The New York Times. But with all that fanfare, many Americans are asking, “What does the solar tax credit extension mean for me?”
If you are interested in clean energy, these potential federal government solar incentives are great news indeed. What’s being called the Manchin Schumer Bill is rife with solar incentives and has oodles of other perks for going green at home and with your vehicle, too.
The Investment Tax Credit Jumps to 30% and Stays There
The Investment Tax Credit (ITC) has been the critical solar incentive for over a decade, but the new bill is ready to turbocharge it. For years, the program gave consumers a credit toward their tax bill based on a percentage of every dollar spent on a new solar energy system. But under current law, the Investment Tax Credit for solar is set to drop from 26% in 2022 to 22% for projects started after January 1, 2023. In 2024, the federal solar tax credit would go away entirely.
Under the Inflation Reduction Act of 2022, the credit would jump to 30% and stay at that rate for ten years. In 2033, it would step back down to the current rate of 26%, then drop to 22% in 2034. The increase to 30% would be retroactive to January 1, 2022 ― so if you’ve already gone solar this year, you’d be in good shape.
Although the solar incentives in the new bill aren’t exactly a federal government solar rebate, they are a pretty big deal. For more information about how federal solar incentives might affect your taxes, check out our blog about the existing government solar panel program.
The longevity of the federal government solar tax credit is nearly as important as the increase in the incentive rate. The solar ITC has been subject to renewal every few years since 2015, and that uncertainty has discouraged U.S. manufacturing. U.S. solar panel manufacturers would be better positioned to invest in new manufacturing if they knew the domestic market had long-term federal government solar rebates in place.
A boon for solar manufacturers in the U.S.
With assurances that the federal solar incentives will last for a decade, manufacturers are much more likely to invest in domestic manufacturing facilities, according to the Environmental Defense Fund. The bill helps fund that investment with $60 billion for renewable energy manufacturing. Makers of solar panels, wind turbines, batteries, and processors of crucial minerals needed for those products would all be eligible for federal incentives.
Building up innovation and manufacturing of clean energy products is a clear priority of the current administration. As recently as July 14th, the administration announced additional funding to spur solar manufacturing and even invoked the Defense Production Act in June, arguing that solar power was integral to the nation’s energy independence.
Batteries and storage get a boost, as well
Solar batteries are covered under the ITC as well. Until now, energy storage as part of a solar system earned the same 30% tax credit. Under the Manchin Schumer Bill, that credit would extend to standalone energy storage, meaning that backup batteries not attached to solar panels are also eligible.
Going green is encouraged for the rest of the house, too
The proposed legislation offers incentives to shift to higher-efficiency appliances throughout the home. Heat pumps, water heaters, and electric HVAC systems would be eligible for tax credits. In addition, $9 billion would be set aside for home energy rebate programs targeted at low-income consumers.
EVs get in on the fun
There are loads of incentives for electric vehicles (EVs) as well. Gone is the 200,000 unit per manufacturer cap, which had made Toyota, Tesla, and GM EVs ineligible for the incentive. The bill would offer up to $7500 per qualifying vehicle if it is manufactured in America using specific critical minerals mined and processed in the U.S.
In a sign of the maturing secondary EV market, used EVs would now be eligible for up to a $4,000 rebate of the sales price. The bill also sets upper-income limits on who can get a credit. The law would also expand the definition of an “EV,” allowing hydrogen-based vehicles and other technologies that meet the zero-emission standard to benefit. The EV incentives have caps around cost-of-vehicle and the income of the purchaser.
The fate of the Inflation Reduction Act of 2022 hangs on a few key votes in the House and Senate. President Biden has signaled that he is eager to sign it.