Inflation Reduction Act: Increases in Solar Energy Savings

January 5, 2024 | Reading Time: 9 minutes

The official signing of the ambitious Inflation Reduction Act has made the federal solar tax credit even more friendly for homeowners by extending the rebate and increasing tax breaks. The U.S. has made its biggest commitent and investment to renewable energy, cementing the country as a world leader in clean energy initiatives. 

Homeowners will now see more financial support to go green by receiving tax credits for energy efficient appliances, electric vehicle purchases and rooftop solar panels.


The federal goverment has incentivized homeowners to make the switch to solar panels with the solar investment tax credit (ITC) since 2005. Concerns of a diminishing future rate have arose. But with the Inflation Reduction Act being official signed on August 16, 2022, homeowners will see increased and extended incentives for adding rooftop solar panels. 

Residential Solar Benefits

  • 30% tax credit of the total cost for solar panels
    • This credit extends and increases the existing tax break by 10 years
    • The extension of this credit would include all solar installation costs incurred this year, 2022, until 2032
    • In 2033, the credit would fall to 26% 
    • In 2034, the credit will drop again to 22%
    • The new tax credit also includes costs for solar batteries which were not included in the previous solar tax credit
      • The solar battery tax credit starts on costs incurred in 2023

Tax Credit Examples

  • If the total cost of your solar panels is $20,000, then you would receive $6,000 in solar text credit making your total payment of switching to solar energy $14,000. You would receive your solar incentive in your following years tax return. If your tax liability is less than the ITC amount, your credit will be rolled over into the next year’s return. The rollover is effective for up to 5 years and you will not be able to receive any of the federal solar tax credit in a tax refund. 
  • Added to the tax credit could be an additional $2,500 a year of savings. This is the savings an average household that uses 893 kwh of energy a month will see on their electric bills every year. This does not include additional benefits from incentive programs like SMART, where homeowners receive monthly payments for their solar system production. 


Even if you do not make the switch to solar energy, homeowners could still see savings of $170 to $220 a year in electricity costs from the policies included in the bill. This will be accomplished by increasing the diversification of the energy source mix.

Resources for the Future, conducted a simulation model to predict the effects of the IRA from 2023-2032. The modeling shows that increasing the amount of clean electricity making up the grid will protect homeowners from shocking rises in fuel prices and volatile price swings otherwise caused by our reliance on fossil fuels and increased demand.

There are also the added benefits for electric vehicles and energy efficent appliances

Overall, the Inflation Reduction Act is estimated to reduce greenhouse emissions by 42% from the levels in 2005.  If the it does reach these estimated levels this would close emissions to within two-thirds of the remaining gap of the U.S.’ 2030 climate goal. Currently, clean energy only makes up about 4% of U.S. energy production.