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Solar Panel Tax Credits and Incentives: Inflation Reduction Act (Part 2 of 2)

Not sure if you can handle the complex pieces of solar energy incentives and tax credits? We don’t blame you! Navigating the multitude of rebates and incentives can be daunting—both for solar energy and for other clean energy sources, like electric vehicles.

Unfortunately, this leaves many homeowners and business owners unsure of what benefits are available to them. At Envalence Energy and Solar Solutions, we’re far more than just solar panel installers—we pride ourselves in making sense of all these pieces to make it easy for customers to get the discounts and rebates they’re entitled to.

residential solar panels eligible for tax credit

Let’s take a closer look at a few of the clean energy tax credits and incentives:

Residential Clean Energy Credit (tax code section 25D)

This section of the tax code covers solar, geothermal heating, and battery tax credits.

Under the program, rooftop solar, geothermal heating, and battery storage installations are covered by a 30% federal tax credit for homeowners. The tax credit is calculated by multiplying the total project cost by 30% (i.e., $30,000 x 30% = $9,000 credit).

This credit is deducted from your total tax liability in a given year. For example, a family (with two children) earning $120,000 per year would have a tax liability of approximately $15,500. After purchasing and installing the new system, the homeowner’s new tax liability is $6,500 resulting in a tax refund equal, at least, to the amount of the credit. In some circumstances, if the tax credit exceeds your annual tax liability, you can claim the remainder in subsequent years.

For more information on business and commercial incentives and rebates, please read Inflation Reduction Act and Incentives – Part 3 – Commercial and Business Applications (Add Link)

Clean-Vehicle Credit (30D) and Credit for Previously Owned Clean Vehicles (25E)

Electric vehicle tax credits: Under this program, corporations and individuals may receive: $7,500 for a new EV with a maximum manufacturer’s suggested retail price (MSRP) of $55,000, or for a van, SUV or pickup truck with a maximum MSRP of $80,000. They can also get $4,000 for a used EV with a maximum MSRP of $25,000. There are other caveats that may impact eligibility:

  • For a new EV, you’re eligible if your household has a modified adjusted gross income of up to $150,000 for single tax filers and up to $300,000 for married couples filing jointly.

  • For a used EV, you’re eligible if your household has a modified adjusted gross income of up to $75,000 for single tax filers and up to $150,000 for joint filers.

In 2023, the Inflation Reduction Act requires eligible new EVs to be assembled in North America and, starting in 2024, to have batteries that were not made by ​“an entity of foreign concern,” including China.

Starting in 2025, the credit will also exclude batteries made with minerals extracted, processed, or recycled by these countries of concern. The restrictions could make it hard for many automakers’ EVs to qualify for this tax credit until the U.S. and its allies have developed more battery-production capacity, which could take years.

electric vehicle eligible for tax credit

Energy-Efficient Home Improvement Credit (25C)

Home energy-efficiency tax credits of up to 30% of improvement costs, are offered in this program for a variety of home upgrades. These upgrades include:

  • Heat-pump air conditioner/​heaters (up to a $2,000 credit)

  • Heat-pump water heaters (up to a $2,000 credit)

  • Electric panel upgrades (up to a $600 credit)

  • Weatherization measures, including air sealing and insulation (up to a $1,200 credit)

An annual cap ($1,200 except for heat-pump appliances, in which case it’s $2,000) means that a household may want to space out projects over a few years to maximize the tax credits they can claim.

High-Efficiency Electric Home Rebate Act (HEEHRA)

HEEHRA is existing legislation that was folded into the Inflation Reduction Act. It’s focused on moderate- and low-income households.

In lieu of tax credits, this program focuses on upfront discounts on home electrification and efficiency installations. HEEHRA discounts cover:

  • Heat-pump water heaters (up to $1,750)

  • Heat pumps (up to $8,000)

  • Electric stoves (up to $840)

  • Heat-pump clothes dryers (up to $840)

  • Weatherization improvements (up to $1,600)

  • Electric panels (up to $4,000)

  • Electric wiring (up to $2,500).

While the total available discounts add up to $19,520, a household can take only up to $14,000 in discounts.

The HEEHRA program serves low-income households (defined as earning up to 80% of area median income), which can get the full value of each discount, and moderate-income households (earning 80-150% of area median income), which can get half of the value of each discount.

The program offers discounts on many of the installations that also earn tax credits in the Energy Efficient Home Improvement (25C) program mentioned above; according to Rewiring America, eligible consumers would be able to get both.

Hope for Homes

Hope for Homes legislation was folded into the Inflation Reduction Act in 2022 and provides rebates for home energy-efficient retrofits. The program is eligible to all homeowners but provides greater benefits to low- and moderate-income households.

Low- and moderate-income households that do home retrofits that are expected to lower household electricity consumption by at least 15% can receive a rebate of $4,000 or up to 50% of the project cost. And retrofits that achieve a 35% electricity reduction would be eligible for $8,000 or up to 80% of the project cost.

For higher-income households, those rebates are halved. Households will probably need to do a home energy assessment in order to qualify for this incentive, according to Rewiring America.

Solar Panel Tax Credit: Next Steps

Navigating all the potential tax credits, rebates, and discounts can be a daunting task! Allow the professionals at Envalence Energy and Solar Solutions to guide you through this complex but lucrative opportunity for you. Scheduling an Energy Audit is the first step in the process!


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