Unlocking Solar Savings in the Inflation Reduction Act

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The Inflation Reduction Act, passed in 2022, provides unprecedented investments in clean energy. However, as guidance continues to be released by the federal government, many questions have arisen for implementing components of the legislation. Below are some answers to common questions, and more details can be found on the Federal IRS website. 

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What are the Clean Energy Tax Credits for Homeowners, and Who Qualifies?

The residential clean energy tax credits include expenses that may qualify if they meet requirements detailed on energy.gov, including:

• Solar, wind and geothermal power generation

• Solar water heaters

• Fuel cells

• Battery storage (beginning in 2023)

 

The amount of the credit the property owner can take is a percentage of the total improvement expenses in the year of installation:

• 2022 to 2032: 30%, no annual maximum or lifetime limit

• 2033: 26%, no annual maximum or lifetime limit

• 2034: 22%, no annual maximum or lifetime limit

 

Click here for more details on the Residential Clean Energy Credit.

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What is Elective Pay (informally called 'Direct Pay') for Tax-Exempt Entities?

​Elective pay allows applicable entities, including tax-exempt and governmental entities that would otherwise be unable to claim tax credits because they do not owe federal income tax, to benefit from some clean energy tax credits by treating the amount of the credit as a payment of tax and refunding any resulting overpayment.

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For example, as a result of the Inflation Reduction Act, a local government that makes a clean energy investment that qualifies for the investment tax credit can file an annual tax return (via Form 990-T) with the IRS to claim elective pay for the full value of the investment tax credit, as long as it meets all of the requirements, including a pre-filing registration requirement. As the local government would not owe other federal income tax, the IRS would then make a refund payment in the amount of the credit to the local government. See Q15 on the IRS applicable credits for elective pay page for a list of applicable tax credits.