What Is the Inflation Reduction Act (IRA), and How Does It Impact Solar Homeowners?

In 2022, US Congress passed the Inflation Reduction Act (IRA), a historic piece of legislation designed to control rising consumer prices across the board. As part of this sweeping bill, Congress also extended the Investment Tax Credit (ITC), a federal incentive designed to reduce the cost of installing solar photovoltaic (PV) panels for homeowners and businesses. 

This article explores what the extension of the Investment Tax Credit means for you – and for anyone else who might consider going solar in the future. 

What Is the Investment Tax Credit – and Why Does It Matter? 

First introduced in 2006, the ITC is a federal solar incentive that provides you with a tax credit you can use to pay off your annual IRS bill. Unlike a standard deduction that reduces your income for the year, this credit is more analogous to a free voucher from the government that you can use to reduce your tax bill for that reporting season. 

When first launched, the ITC provided a 30% tax credit for homeowners and businesses. This meant a $15,000 solar PV installation would have generated a $4,500 credit. If you owed Uncle Sam $5,000 in taxes that year, your solar credit would essentially reduce your tax bill to just $500. 

The Investment Tax Credit was designed to help spur solar PV adoption until the technology became mainstream. The program has largely achieved this goal, with the Solar Energy Industries Association (SEIA) crediting the ITC with growing the PV industry by 200x since 2006. The Investment Tax Credit has also helped create hundreds of thousands of new green jobs, while also injecting billions of dollars into the national economy. 

As with most government incentives, however, the ITC was set to expire, with intermittent downgrades as the program was slowly phased out. Congress had occasionally extended the Investment Tax Credit in the past. But as of 2020, the original 30% credit had shrunk to 26%. In 2023, the program was scheduled to drop down to 22%. And, by 2024, the ITC would be gone for homeowners, with businesses still able to claim a 10% tax credit. 

Thanks to the Inflation Reduction Act, the ITC has now been restored to its original 30% through 2032. Thereafter, it drops to 26% in 2033 and 22% in 2034. 

Equally important, the IRA covers energy storage as well, with provisions that now allow you to include the cost of solar batteries and installation labor into the larger ITC credit. Similar benefits await electric vehicle (EV) drivers, with the Inflation Reduction Act introducing a $7,500 credit for new vehicles and a 30% credit to help cover the cost of EV-charging equipment for homeowners. 

Impact of the ITC Extension 

It is difficult to overstate the long-term economic and environmental impact of the ITC’s extension. According to the US Department of Energy, the Investment Tax Credit’s 30% rate will help save the average homeowner roughly $7,500 when they go solar.  This is on top of the $9,000 that the average homeowner will save over the 25+ years of their PV systems’ lifetimes. 

In addition to helping make solar more affordable than it already is, the ITC will also play an important role in protecting the planet. The world must rapidly decarbonize to avoid the worst effects of climate change. The Investment Tax Credit will continue to help spur consumer investment in renewables like solar, batteries, and electric vehicles. This investment will also help stimulate the economy, while creating countless new jobs in the larger green space. 

Simply put, the ITC extension delivers a host of benefits – not just for solar customers, but for everyone. 

With the ITC Extended, Should I Go Solar Today? 

This is a fair question. Incentives are normally designed to reward early adopters.  Historically, it made sense to apply as soon as possible to qualify for the largest possible tax credit.  In fact, many homeowners decided to go solar based on this urgency.  

With the program extended for another 10 years, however, this urgency is gone.  

Homeowners and businesses now have a full decade to consider going solar to take advantage of the 30% tax credit. There are instances when waiting actually does make sense. For example, anyone who went solar in 2021 would have qualified for a lower credit (26%) than if they had waited until the IRA restored it back to 30% in 2022. 

However, there are several reasons why delaying your solar purchase may be a mistake – even with the Investment Tax Credit being revived for another 10 years: 

  • Every month that you delay going solar represents another month you’re giving money to your local utility provider. Each payment translates to lost savings since you could have been generating (and storing) your own free energy from the sun. Worse still, those monthly forfeit savings will only grow as utility rates increase. 
  • Solar installation labor costs tend to rise with time. Due to inflation, many PV components are also more expensive today than they were a year ago. This means delaying your solar investment could result in a more expensive system – even after qualifying for the full 30% Investment Tax Credit. 
  • Congress extended the program in 2022. But, there’s nothing to prevent downgrades or repeals under future legislative bodies. In other words, we do not know if the next administration will support the same climate change goals.

If you already know that you’ll go solar one day, now may be the best time to act. Doing so ensures you qualify for the maximum payout under the ITC. It also means you avoid paying unnecessarily high utility bills in the interim. With solar PV panels on your home or business, you can start generating decades of financial and environmental savings. 


The Inflation Reduction Act primarily controls runaway prices as the world recovers from a historic global pandemic. The IRA also strengthens and introduces new provisions for solar power, battery storage, and electric vehicles and that will help make these technologies more affordable for the average consumer. Once installed, renewables deliver decades of direct financial savings for the user, while also helping to create jobs, stimulate the economy, and allowing us to reduce our dependence on fossil fuels. However, these benefits only start to accumulate once you go solar.  

Fortunately, the ITC’s extension means you potentially qualify for free money from the government to help you finance a new PV system for your home or business. You technically have 10 years to consider installing panels and applying for the incentive. But why wait when you could have lower utility bills and a smaller carbon footprint starting tomorrow? 

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