Residential Renewable Energy Tax Credit

Summary

Note: Section 13302 of The Inflation Reduction Act of 2022 (H.R. 5376) extended the expiration date and modified the phase down of this tax credit. It also made stand-alone energy storage systems eligible for the credit, and biomass heaters ineligible for the credit. Biomass heaters are now eligible for the residential energy efficiency tax credit. The summary below reflects the credit after the enactment of H.R. 5376.

A taxpayer may claim a credit for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the "placed in service" date is the date of occupancy by the homeowner. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.

Solar-electric property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
• At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible.
• The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
• The home served by the system does not have to be the taxpayer’s principal residence.

Fuel cell property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The maximum credit is $500 per half kilowatt (kW).
• The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.
• In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she paid.
• The home served by the system must be the taxpayer’s principal residence.

Small wind-energy property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The home served by the system does not have to be the taxpayer’s principal residence.

Geothermal heat pumps

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The geothermal heat pump must meet federal Energy Star criteria.
• The home served by the system does not have to be the taxpayer’s principal residence

Battery Storage Systems (Standalone Systems)

• 0% for systems placed in service before 1/1/2023
• 30% for systems placed in service after 12/31/2022 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• The system must have a capacity of at least 3 kilowatt hours
• The home served by the system does not have to be the taxpayer’s principal residence.

Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by "subsidized energy financing." For projects placed in service after December 31, 2008, this limitation no longer applies.

Energy Storage

Prior to the enactment of the Inflation Reduction Act of 2022, the federal tax code did not explicitly reference energy storage, so stand-alone energy storage systems did not qualify for the tax credit.  However, the IRS issued Private Letter Rulings in 2013 and 2018, which address energy storage paired with PV systems. In both cases, the IRS ruled that the energy storage equipment when paired with PV met the statutory definition of a "qualified solar electric property expenditure," as was eligible for the tax credit. It is important to note that Private Letter Rulings only apply to the taxpayer who requested it, and do not establish precedent. Any taxpayer considering the purchase of an energy storage system should consult their accountant or other tax professional before claiming a tax credit.  

History

Established by The Energy Policy Act of 2005, the federal tax credit for residential energy property initially applied to solar-electric systems, solar water heating systems and fuel cells. The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009, which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.