How the Inflation Reduction Act helps you and your community go solar
The Inflation Reduction Act of 2022 (IRA) may be the most important pro-solar law Congress has passed.
For prospective solar owners, the most important piece is the extension of the 30% federal tax credit for residential solar. Beyond that, the bill contains many provisions that will help you and your community go solar and take control of where your energy comes from.
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Read on to learn how.
What the IRA means for you and your community
The IRA will result in substantial energy savings, economic and health benefits for American families and businesses.
According to White House projections, it will:
- Save families that use the bill’s tax incentives more than $1,000 each year.
- Enable 7.5 million families to install solar on their properties.
- Create millions of good-paying jobs.
- Prevent up to 3,900 premature deaths and up to 100,000 asthma attacks annually by 2030 due to the reduction of fossil fuel pollution.
Further, Rewiring America estimates that families could save $1,800 each year with an electric heat pump for HVAC and hot water, an electric vehicle, and solar panels.
How the bill helps you and your community go solar
Making solar more affordable for homeowners
The IRA restores and extends federal solar tax credits. This includes the residential Investment Tax Credit (ITC). Thanks to the bill, homeowners who install solar between the start of 2022 through the end of 2032 will be able to deduct 30% of the cost from their federal income taxes. If you owe less than that amount in federal taxes for the year you install your system, you can carry over any unused credit to the next year.
After 2032, the residential ITC will start to phase out. It drops to:
- 26% in 2033
- 22% in 2034
- 0% for 2035 and beyond
Helping nonprofit organizations go solar
Entities that don’t pay taxes (churches, schools, and charities) were unable to benefit from solar tax credits. The IRA changes this.
Tax-exempt organizations will be able to benefit from federal solar incentives through a new “direct pay” option. This will start in 2023. It will allow nonprofit organizations, private nonprofit and public schools, faith-based organizations, local and state governments, tribal governments, and rural electric cooperatives to receive cash payments in lieu of tax deductions. We expect the IRS to provide guidance with more details on how this will work soon. We will provide an update once this happens.
Expanding options for people who can’t go solar at home
The IRA also extends tax credits for community solar projects. These are solar installations that allow individuals or groups to buy or lease a share of a project. Participants then earn credit off their electric bill based on the amount of electricity their share generates.
The IRA includes additional benefits for community solar. These will be especially helpful for small-scale, equity-focused community solar:
- Starting in 2023, small community solar projects (under 1 MW) will qualify for a base ITC of 30% through 2033. These projects can earn additional credits:
- + 10% for meeting domestic content specifications
- + 10% if at a brownfield site or in a community directly impacted by fossil fuels
- + 10% if in a low-income community or on tribal land (by application)
- + 20% if part of a Low-Income Residential Building Project or Qualified Low-Income Economic Benefit Project (by application)
- Larger community solar projects can also qualify for the above. These only apply at the same levels if they meet certain labor requirements.
Other ways the IRA helps people take control of where their energy comes from
Efficiency & electrification
The IRA includes a variety of incentives to help you and communities across the country use less electricity and use it from cleaner sources. The bill provides:
- Tax credits for home electric heat pumps and certain home electrical upgrades. These will be available starting in 2023 (see here for details).
- Nearly $8.8 billion for State Energy Offices and Indian Tribes to establish rebates for home efficiency and electrification upgrades.
- Tax credits of up to $7,500 for new and up to $4,000 for used electric vehicles. These credits will be available in 2023. The value of the credit depends on:
- Personal income
- Vehicle cost
- The sourcing of certain vehicle parts
Making our energy system fairer
The IRA dedicates billions of dollars towards programs that will address inequities in our energy system. Investments include:
- $3 billion in Environmental and Climate Justice block grants,
- More than $11 billion for programs that will support clean energy in rural communities,
- $27 billion to establish a National Green Bank to benefit low-income and disadvantaged communities.
For more details on these provisions, see here.
Stay up to date on this and other solar issues
Dig into the details in SUN’s August 2022 IRA webinar