The popularity of home batteries has increased over the years, particularly in conjunction with the installation of solar panels. Energy storage offers numerous advantages, including serving as a backup power source during grid outages, reducing your reliance on utilities, and decreasing your electricity bills. However, home batteries can be a substantial financial investment, with residential battery systems often costing between $10,000 and $20,000.
Fortunately, homeowners who wish to install solar batteries may be eligible for the federal clean energy tax credit. This tax credit, also known as the solar tax credit or federal tax credit, can cover 30% of the cost of battery installation, making it a significant incentive for energy storage adoption.
Let’s examine the federal tax credit in more detail and explore how it can be applied to your battery storage installation.
How Much is the Federal Tax Credit Worth for Battery Installations?
The federal clean energy tax credit is a subsidy worth 30% of the cost of various clean energy projects, such as solar, battery, and geothermal heat pump installations. For example, if a battery installation costs $10,000, the homeowner would receive a tax credit of $3,000.
The full 30% tax credit is available until the end of 2032. After that, the tax credit value will decrease to 26% in 2033, and further decrease to 22% in 2034 before expiring in 2035.
The solar tax credit functions similarly to other tax credits in that it reduces an individual’s federal income tax liability. If the value of the tax credit exceeds the individual’s tax liability, the excess credit can be carried over to the following tax year. For instance, if an individual’s tax credit is worth $3,000 but their tax liability is only $2,000, the remaining $1,000 can be applied to reduce their tax liability in the following year.
How Much Will a Battery Storage System Cost With the Tax Credit?
The final cost of a battery system can vary significantly depending on the equipment chosen and labor costs. On average, a battery installation may be eligible for a tax credit ranging from $3,000 to $5,000.
Does the Home Battery Need to be Paired with Solar to Get the Tax Credit?
Batteries installed before December 31, 2022 must be paired with solar panels and powered solely by solar energy in order to qualify for the federal tax credit.
Starting in 2023, the Inflation Reduction Act allows for both stand-alone home battery systems and batteries paired with solar panels to qualify for the tax credit, eliminating the requirement for the latter to be charged exclusively by solar energy. This means that both systems will be eligible for the tax credit.
What if You Add a Battery to an Existing Solar Panel System?
You can still qualify for the tax credit even if you install a battery and pair it with solar panels that were previously installed on your roof. The specific requirements for this are somewhat unclear, but a 2018 IRS ruling suggests that as long as the battery is powered exclusively by solar energy, it can be eligible for the tax credit if it’s installed after the solar panels.
Batteries installed after 2023 will not need to adhere to the requirement for solar energy as a sole power source.
Can You Claim the Tax Credit and Use Other Battery Storage Incentives?
Yes, it’s possible to receive the federal solar tax credit in conjunction with other energy storage incentives. These incentives may be offered by state and local governments or utility companies, and the specific incentives available may vary by location.
The tax credit for a battery installation can be calculated based on the cost of the system after taking into account any applicable incentives. For example, if you reside in California and install a battery system for $10,000, and receive a $1,500 rebate through the state’s SGIP battery incentive program, the value of your tax credit will be calculated based on the reduced cost of $8,500 after applying the SGIP incentive.
On the other hand, if the incentive is through a utility virtual power plant program, where the utility is able to utilize the energy stored in your battery and compensates you for the energy it uses, the tax credit will still be based on the initial installation cost of the system.
It’s important to note that other battery incentives may have different qualifications, such as requiring the battery to be paired with solar panels or allowing the utility to have access to the battery.
What Home Batteries are Eligible for the Clean Energy Tax Credit?
Batteries of all brands, chemistries, and costs are eligible for the tax credit when the following criteria are met:
- The battery system must be owned by the taxpayer.
- The taxpayer must have taxable income.
- The battery must be installed at the taxpayer’s home.
- The credit can only be claimed for the initial installation of the system.
- The battery or batteries must be powered exclusively by solar energy from an on-site solar panel system.
Starting in 2023, batteries must be at least three kilowatt-hours (kWh) in size, but will no longer need to be powered by solar energy.
To claim the federal tax credit, the taxpayer must complete IRS form 5695 while filing their taxes for the year in which the installation was completed. We advise consulting with a tax expert for further guidance on the process.
You Can Depend on the Future of Energy Storage
Home batteries are essential in achieving a clean energy future and the 30% tax credit plays a vital role in making this transition. Currently, battery storage is still quite costly and may not be feasible for all homeowners. However, as power outages become more common, battery prices decrease, and utilities change their billing practices for solar customers, the popularity of batteries is likely to increase.
Homeowners who want to install a stand-alone battery as a backup energy source can now take advantage of the federal solar tax credit starting in 2023. However, those interested in installing both solar panels and a battery should consider acting sooner, as solar batteries already qualify for the full 30% tax credit and can provide peace of mind in the event of a utility outage.
The federal clean energy tax credit has played a crucial role in making battery storage a viable option for homeowners in California and across the nation. This incentive offers significant benefits, including cost savings on electricity bills, a reduction in carbon emissions, and protection against rolling blackouts.
To determine if a Tesla Powerwall or SunPower SunVault home battery is suitable for your energy needs, our certified Solar Technologies representatives can provide guidance. If you’re interested in transforming the way your home is powered and saving money with solar energy, please contact us for a free personalized quote.
Disclaimer: This article provides an overview of the federal solar investment tax credit (ITC). It does not constitute professional tax advice or other professional financial guidance and may change based on additional guidance from the Treasury Department. The information in this article should not be used as the only source of information when making purchasing decisions, investment decisions, tax decisions, or when executing other binding agreements.