The Federal Investment Tax Credit (ITC) is a well-known incentive program that can make it more affordable for homeowners to invest in solar. The ITC allows you to deduct a percentage of your solar energy system and solar panel installation costs from your total tax liability in the year of purchase. What you might not realize is that the ITC can provide solar battery storage tax credits for your home as well.
When paired with a solar energy system, most smart home batteries are eligible for the Solar Investment Tax Credit, and they may also be eligible for state, local, and utility incentives. However, you must meet some specific requirements to qualify.
If you're considering a solar energy system with solar battery storage, this article should answer your questions and help you maximize your savings.
What is the Federal Investment Tax Credit?
Also known as the solar tax credit, the Federal Investment Tax Credit (ITC) 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 ITC, you can earn a credit on your tax return.
How Does the ITC Work?
The Federal Investment Tax Credit is a dollar-for-dollar program currently worth 26% of your total system and installation costs (through the end of 2022, then 22% through December 31, 2023) applied as a credit towards your tax liability in the year of purchase, reducing your taxable income. You can only file for the ITC once per installation, and you must file in the same tax year in which you installed your solar panel system.
Any credits earned can then 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.
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.
- Any time your solar energy system creates more electricity than your home needs, the excess generation will charge your solar battery system.
- Any time your home needs more electricity than your solar panels can create, it draws stored energy from your solar battery.
- Once your solar batteries are full, any excess electricity produced by your solar energy system will bypass your batteries and go to the utility grid.
To learn more about how solar battery storage works, check out Energy Storage Explained.
How Can I Earn the ITC with My Solar Battery Storage?
Your solar battery storage may be eligible for the Federal Investment Tax Credit if it meets these requirements:
- Your battery is paired with your solar energy system.
- You charge your solar battery with electricity created by your solar panels.
In other words, your solar project won’t be eligible for battery storage tax credits if your battery storage system isn’t connected to and charged by your solar energy system.
The easiest way to ensure your battery storage will qualify for the ITC is to install your solar panels and solar batteries at the same time. This makes it easier to prove that your storage is charged by solar power generation, and allows you to maximize the financial benefits of going solar.
Why Would My Battery Storage NOT Be Eligible for the ITC?
You will not be eligible to receive the federal solar tax credit for your solar battery storage system if you charge the battery directly from the electricity grid.
The point of the ITC is to encourage people to adopt renewable energy technology. If you charge your batteries with electricity from the utility grid, you aren’t helping to create a clean energy future.
Can I Earn the ITC If I Add Battery Storage to an Existing Solar Power System?
Yes, in many cases residential solar batteries are still eligible for battery storage tax credits, even if they aren’t installed in the same tax year as the solar panel system. However, this eligibility has been established through a number of private rulings with the IRS, so it’s not as cut and dry as the ITC for solar panels.
If you’re installing batteries after installing your solar array, we recommend that you speak with a licensed tax professional to discuss your eligibility and potential for a solar tax credit in greater detail.
Do State-Level Tax Credits Exist for Battery Storage?
Yes, in many states, there are additional energy storage tax credits and incentives that are available for homeowners who are interested in installing backup power. A few examples of governments that offer a state tax credit include:
California Tax Credits 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.
(For more CA tax credits and incentives, check out our Guide to California Solar Incentives.)
New York Tax Credits for Battery Storage
There is a solar-related incentive currently available in New York as a $250 per kilowatt rebate exclusive to Long Island residents. Eligibility requirements include:
- Your solar plus storage system must be installed by a NY-Sun contractor.
- You must enroll in and actively participate in PSEG Long Island’s Energy Storage Rewards program for at least five years.
- At least 80% of your battery’s usable capacity must be available from May 1 through September 30 of each year, except during major storms.
Maryland Tax Credits for Battery Storage
Maryland is one of the few states in the United States that currently provides a storage-specific tax credit to its residents. The Energy Storage Income Tax Credit Program is currently authorized through the 2022 tax year. There is a limit on the number of solar incentives available each year, so you should act fast if you're interested.
(For more MD tax credits and incentives, check out our Guide to Solar Panels in Maryland.)
Massachusetts Tax Credits for Battery Storage
The Solar Massachusetts Renewable Target (SMART) incentive program pays based on your solar production. The per-kilowatt-hour incentive can increase if you buy more battery storage.
(For more MA tax credits and incentives, check out our Guide to Solar Panels in Massachusetts.)
How To Get Battery Storage Tax Credits
- Tax credits exist for solar battery storage at your home, but your batteries must be connected to your solar panels.
- Learn more about the Federal Investment 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.
- There are some state-level tax credits available, but you must live in those states to qualify.
Solar panels are a great way to save on your energy costs and reduce your home's environmental impact, and solar battery storage adds even more benefits to your solar power system, such as protection from power outages and blackouts.
Thanks to the handy online Solar Design Tool from Palmetto, it's easier than ever to go solar. Contact us today to learn more about how we can help you install the right solar panels and battery storage system for your home’s needs.