Home solar panels are eligible for federal tax credits. Home batteries are eligible, too.
In fact, the same tax credit — the Residential Clean Energy Credit — covers both.
Thanks to the 30% tax credit, you could be eligible to shave thousands of dollars off your tax bill when you install a home battery, with or without solar. Batteries can boost solar savings, provide power during an outage. The federal tax credit makes those benefits more affordable.
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What Is the Residential Clean Energy Credit?
Also known as the solar tax credit, the Residential Clean Energy Credit helps homeowners offset the cost of purchasing a photovoltaic (PV) or solar energy system for their home. If you are eligible and apply for the Residential Clean Energy Credit, you can earn a tax credit on your federal income taxes.
How does the Residential Clean Energy Credit work?
The Residential Clean Energy Credit is a tax credit worth 30% of your total system and installation costs, applied as a credit towards your tax liability in the year of installation, reducing your taxable income. You can file for the Residential Clean Energy Credit once per installation, and you must file in the same tax year in which you installed your solar panel system.
Any credits earned reduce the total amount you owe on your annual federal tax return. If your credit is higher than your total tax liability for the year you installed solar, you can potentially roll the difference to subsequent years.
To apply, use Tax Form 5695 to calculate your credits, and then add that number to Form 1040 while filing your taxes.
Besides batteries, the Residential Clean Energy Credit can apply to solar panels, solar water heaters, wind turbines, geothermal heat pumps, and fuel cells.
What Are the Basics of Solar Battery Storage?
Solar batteries are rechargeable batteries that store the excess energy produced by your solar PV system. The process follows five basic steps:
- Solar panels generate electricity from solar energy.
- Electricity travels from the panels to your home.
- When your solar energy system creates more electricity than your home needs, the excess generation charges the battery system.
- When your home needs more electricity than your solar panels generate, it draws stored energy from your solar battery.
- Once your solar batteries are full, any excess electricity produced by your system will go to the utility grid.
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Claiming the Residential Clean Energy Credit for Adding Battery Storage to an Existing Solar System
In most cases, residential solar batteries are eligible for federal tax credits, even if they aren’t installed in the same tax year as the solar panel system. This is a new benefit in the Inflation Reduction Act of 2022.
If you’re installing batteries after installing your solar array, we recommend you speak with a licensed tax professional to discuss your eligibility and potential tax implications in greater detail.
Do State Tax Credits Exist for Battery Storage?
There are additional state and local tax credits and incentives available for homeowners who are interested in installing energy storage. A few examples include:
California incentives for battery storage
The top state-level performance-based tax incentive for California is the Self-Generation Incentive Program (SGIP). The SGIP helps people shift to clean energy by providing a dollar-per-kilowatt rebate for the battery storage installed.
New York incentives for battery storage
Long Island residents may be eligible for a solar-related incentive currently available in New York as a $250 per kilowatt rebate.
Other rebates and tax credits
The availability of tax credits and rebates change over time and quickly. Check with your state, county, or city for tax credits, and your utility for rebates, too. Always confirm for yourself that incentives are available before counting on them.
How to Get Battery Storage Tax Credits
- Learn more about the Federal Solar Tax Credit to see how it could lower your total costs for a solar energy system and solar battery storage.
- Before you invest, determine your energy needs so you can purchase the correct system size and amount of battery storage.
Solar panels paired with batteries can be a great way to save on your energy costs. Depending on your usage and needs, you may see more benefits such as more independence from utility companies and power during outages.
Thanks to Palmetto’s free solar savings calculator and home energy advisor, it's easier than ever to get more information and go solar. Contact us today to learn more about how we can help you install the right solar energy system for your home’s needs.
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Frequently Asked Questions
What products qualify for the Residential Clean Energy Credit?
New clean energy products and the installation of those items qualify for the federal tax credit. This includes solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage.
How much energy can a solar battery store?
Solar energy storage is measured in kilowatt-hours (kWh), with typical sizes for residential systems being 5-20 kWh. To increase a system’s electric storage capacity, most solar batteries are installed in banks of multiple batteries.
Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
Andrew GiermakWriter and EditorAndrew joined Palmetto in Charlotte in August 2024. He’s been a writer in journalism, then in business, going back to almost the 20th century. He’s lived in Indiana, Virginia, Pennsylvania, Virginia again, and now North Carolina for the last 12 years. He likes golf. Is he good at it? Not so much.
