Energy Storage Tax Credits – Details to Know

energy storage tax credits

With the rising energy cost, many homeowners and businesses are looking for ways to reduce their energy bills. One of the most popular options is to invest in energy storage systems such as whole-home battery backups and solar arrays. While this investment can be costly upfront, energy storage tax credits can help offset some of the expense.

This article will look at the details of energy storage tax credits and solar investment tax credits, including eligibility requirements and how to claim the credits.

What Are the Energy Storage Tax Credits?

Energy storage tax credits are a series of income tax credits designed to assist with the production, deployment, and use of energy storage technologies in the United States. These credits range from $30-$1000 per kilowatt hour (kWh) for storage systems installed in homes and businesses to $150 per kWh for grid-connected and non-grid-connected systems.

Who Is Eligible for Energy Storage Tax Credits?

The primary qualification for claiming energy storage tax credits is that the purchaser must use their system to store renewable energy. Systems used solely for home heating purposes do not qualify. 

Energy storage tax credits are available for purchases of both grid-connected and non-grid-connected energy storage systems. These credits are tiered based on the amount of energy stored in kilowatt hours (kWh) of storage equipment – more commonly referred to as kW/kWh. The resulting tier is determined by the energy storage capacity of the system (in kWh) multiplied by the system’s installed price (in dollars).

How Much Are Energy Storage Tax Credits Worth?

Energy storage systems have proven to be quite valuable, and their demand continues to increase yearly, so the tax credits have a high potential value. A study performed by the Energy Storage Association showed that energy storage tax credits could be worth up to $3.3 billion in credits for residential systems.

The main limitation of energy storage tax credits is that they are only available for systems purchased and installed from January 1, 2015, to December 31, 2025. However, it is essential to note that some exceptions can extend this timeline depending on location (i.e., rural areas).

How Much Is the Federal Tax Credit Worth for Battery Installations?

The energy storage tax credit is designed to cover up to 30% of the qualifying storage costs. The storage system must operate for at least six months after it was purchased and installed. The IRS has noted that if the battery system was installed in your home, it must be used for at least one year before claiming the rebates. The cost of the battery is calculated after your manufacturer’s rebate is applied.

The purchase of a storage system for home use can qualify for a maximum credit of $4,000. The storage system must be connected to the local energy grid. The credit can also be applied to commercial installations, which can reap a significant rebate of up to $500,000.

How Much Will a Battery Storage System Cost With the Tax Credit?

The selling price of a system depends on the battery manufacturer’s rebate. The Federal Trade Commission tested and verified that the average rebate for an installed residential battery system is approximately $2,500. 

For example, if a homeowner purchases a 3kWh battery from a company for $10,000, and the manufacturer’s rebate is applied to the cost of the system, the federal tax credit would be worth $4,500.

Battery systems are eligible for state incentives as well. The average state incentive is $500, so the total motivation would be $5,000; this means you could purchase a 3kWh battery system for as low as $4,500 at the time of purchase and install the battery – however, this is going to vary from state to state. 

What Are the State Tax Credits for Energy Storage?

Various states and cities also have tax credits for energy storage systems. The rules, requirements, and caps vary by state, but some states offer as much as $5,000 per kilowatt (kW) storage capacity.

To learn more about Texas solar incentives, click the link!

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