One of the biggest incentives in the solar industry is the residential renewable energy investment tax credit (ITC). This tax credit allows a taxpayer to claim a 30% rebate on their qualified expenditures for a residential or commercial solar-electric system. There are some rules as to what systems and who may qualify for this credit, but for most homeowners that are going solar should have no problem.
Here are some of the specifics:
- 30% rebate for systems put in service by 12/31/2019
- 26% for systems put in service after 12/31/2019 and before 1/01/2021
- 22% for systems put in service after 12/31/2020 and before 1/01/2022
- No maximum credit
- The home where the system is installed does not have to be the taxpayer’s main residence
Although the rate is going down over the next few years, there still is a lot of time to get some serious refunds on your panel system. With such a good offer, a prospective solar panel owner must always do their research to see if they qualify for these types of incentives.
This is especially important for owners that also want to install a home battery to their system. In this post, we will see how getting a battery affects your federal solar tax credit.
IMPORTANT DISCLAIMER: As with any tax decision, please consult your CPA or tax advisor before filing. This article has been prepared for informational purposes only.
First, Is a Battery Necessary?
This first question that you want to ask yourself is whether or not getting a battery is needed. Each homeowner will have different reasons for getting their system, and a battery brings a lot of additional value to a solar system. Having a battery does not mean you will not qualify for the federal solar tax credit, but it requires additional research to make sure you maintain your federal solar incentive.
If you do not think the battery is necessary, it could save you time and money to simply go with a more traditional, grid-connected system. For either situation, here are the details about what type of batteries will still qualify your solar panel system for the federal solar tax credit.
Will a Battery Qualify for the ITC?
The ITC allows project owners and investors to qualify for the federal tax credits for the installation of “energy property,” which includes the materials and equipment used to generate electricity from solar energy. Further, “storage tanks” are classified by Treasury Regulations as a qualifying piece of equipment for a solar system. The Treasury Regulations also state that,
“solar energy property includes equipment that uses solar energy to generate electricity and includes storage devices, power conditioning equipment, transfer equipment and parts related to the functioning of those items.” - Treas. Reg. § 1.48-9(d)(3)
From the available information, it is valid to conclude that the Treasury Regulations includes all types of storage systems, which also means electric systems like batteries. Other sources that lead to this conclusion are the multiple legislative actions that have taken place around this issue.
- In 2011, a wind-farm that claimed the federal solar tax credit also had lithium-ion batteries installed. The IRS concluded that the batteries were storage devices and qualified as solar energy property.
- In 2013, the IRS made the same decision for storage in solar systems.
- In 2014, the IRS clarified that because the purpose of a battery is to store energy for later use, it is a storage device, is solar energy property, and thus, is eligible for the ITC.
- Most recently, released in March 2, 2018, the IRS ruled in a private letter that a battery constitutes as a "qualified solar electric property expenditure," although they have stated that it shouldn't be used as precedent.
Exceptions to Claiming Your Battery with the ITC
Although the decisions made by the IRS indicate that there should be no problem with qualifying for the federal solar tax credit, there are still a few exceptions that may lead to you losing this incentive.
If you have a dual-use battery (a battery that stores energy from solar/wind and a non-qualified energy source), then there is a chance that you may not qualify.
To qualify, the first thing you need to do is make sure that you have a system that can accurately track both sources of energy. After that, you must ensure that the energy stored from non-qualified sources does not exceed 25% of the total energy input each year. Secondly, dual use equipment also must adhere to a recapture rule.
More Likely Than Not...
It is much more likely than not that the type of battery you would be looking to install with your solar panel system would qualify for the federal solar tax credits. There are just a few exceptions, but whether you are installing a battery with the system, or are installing the battery to an existing system, it is very likely that you will still qualify for the 30% ITC.