The Inflation Reduction Act is poised to make big changes across a number of industries, and perhaps most excitingly, this bill could prove to be a landmark breakthrough for renewable energy. Ever since its creation in 2006, and most notable since its extension in 2020, the solar Investment Tax Credit (ITC) has been a big deal for solar energy.
What is the Inflation Reduction Act?
The Inflation Reduction Act of 2022 is an updated version of the Build Back Better Bill, which is set to make a number of landmark investments in federal programs across the board. It includes a corporate minimum tax rate, prescription drug price reforms, IRS tax enforcement, the closing of a carried interest loophole, and major investments in both healthcare and renewable energy.
Updating the ITC
The ITC has provided incredible value to solar adopters, netting both residential and commercial investors a 26% tax credit. The ITC has proven to be an incredible boon to the solar industry, and in turn has allowed countless homes and businesses to make the switch to clean, renewable energy.
However, there has always been a ticking clock on this incredible tax credit. Since the extension, we’ve known that the 26% credit was going to be reduced over time, and ultimately fade from existence. That’s why we’ve so strongly encouraged people to take advantage of this huge tax credit while it is available. If you’re ultimately going to have to make the switch to solar, why not do so when the financial benefits are at their best?
That being said, the Inflation Reduction Act is a reprieve for anyone who has been hesitant to invest in energy independence. Let’s investigate how the Inflation Reduction Act is set to keep the window of opportunity open a little longer, and what you need to consider if you haven’t already started saving with a solar installation of your own.
A Window of Opportunity
Previously, the ITC was set to diminish from a 26% tax credit to a 22% tax credit at the end of 2022, and disappear completely for residential adopters by the end of 2023. Luckily, solar is a solid, stable, and valuable investment with or without the tax credit, but we firmly believe that if you can save money on solar, you should. Even with no tax credit you’d still be gaining thousands of dollars in property value, putting an end to your solar bill, and avoiding the fluctuations of an increasingly volatile market. But hey, when it comes to value, if you’re going to have a sundae why not get it with whipped cream? You’re only making a good situation better by investing under the umbrella of a tax credit program.
So the ITC is a value driver for solar, but it was set to deplete. But now? With the Inflation Reduction Act on the path to being passed, we have a huge win on our hands - a 30% tax credit, retroactive through the beginning of 2022, and slated to extend out for ten years. Ten years! That’s right, the Inflation Reduction act is about to play a major role in expanding solar access to all, and the retroactive application of the bill means you can invest now at the 26% benchmark and be upgraded to 30% on the passing of the bill.
Inflation Reduction, Energy Independence
No matter how you slice it, this is huge for solar, and the increased accessibility of solar can only help us lower costs and protect the environment with expanded clean energy generation. For anyone who waited until the last minute, this is a huge “saved by the bell” moment, as this extension has swooped in and protected late adopters from the planned depreciation of the credit in 2023. For anyone still on the fence, the value of solar has never been better. Do yourself a favor and don’t stay glued to the fence for another ten years, because this credit will similarly depreciate in 2033, and again in 2034.
Hopefully ten years is more than enough time for anyone left out in the cold to realize how good it is to be on the solar side of renewable energy. You can say farewell to your energy bill, add tremendous value to your home or business, and yes, take advantage of this stellar new tax credit. If you’re interested in starting a solar project of your own, and earning a 30% tax credit in the process, be sure to connect with one of our expert solar consultants.