Residential Renewable Energy Tax Credit

A taxpayer may claim a credit for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the "placed in service" date is the date of occupancy by the homeowner. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.Solar-electric property 30% for systems placed in service by 12/31/201926% for systems placed in service after 12/31/2019 and before 01/01/202230% for systems placed in service after 12/31/2021 and expenditures made before 01/01/2026 Solar water-heating property 30% for systems placed in service by 12/31/201926% for systems placed in service after 12/31/2019 and before 01/01/202230% for systems placed in service after 12/31/2021 and expenditures made before 01/01/2026Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible.The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.The home served by the system does not have to be the taxpayer’s principal residence. Fuel cell property 30% for systems placed in service by 12/31/201926% for systems placed in service after 12/31/2019 and before 01/01/202230% for systems placed in service after 12/31/2021 and expenditures made before 01/01/2026The maximum credit is $500 per half kilowatt (kW).The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she paid.The home served by the system must be the taxpayer’s principal residence. Small wind-energy property 30% for systems placed in service by 12/31/201926% for systems placed in service after 12/31/2019 and before 01/01/202230% for systems placed in service after 12/31/2021 and expenditures made before 01/01/2026The home served by the system does not have to be the taxpayer’s principal residence. Geothermal heat pumps 30% for systems placed in service by 12/31/201926% for systems placed in service after 12/31/2019 and before 01/01/202230% for systems placed in service after 12/31/2021 and expenditures made before 01/01/2026The geothermal heat pump must meet federal Energy Star criteria.The home served by the system does not have to be the taxpayer’s principal residence Battery Storage Systems (Standalone Systems)0% for systems placed in service before 1/1/202330% for systems placed in service after 12/31/2022 and expenditures made before 01/01/2026The system must have a capacity of at least 3 kilowatt hoursThe home served by the system does not have to be the taxpayer’s principal residence. Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by "subsidized energy financing." For projects placed in service after December 31, 2008, this limitation no longer applies.Energy StoragePrior to the enactment of the Inflation Reduction Act of 2022, the federal tax code did not explicitly reference energy storage, so stand-alone energy storage systems did not qualify for the tax credit. However, the IRS issued Private Letter Rulings in 2013 and 2018, which address energy storage paired with PV systems. In both cases, the IRS ruled that the energy storage equipment when paired with PV met the statutory definition of a "qualified solar electric property expenditure," as was eligible for the tax credit. It is important to note that Private Letter Rulings only apply to the taxpayer who requested it, and do not establish precedent. Any taxpayer considering the purchase of an energy storage system should consult their accountant or other tax professional before claiming a tax credit.