Does energy storage qualify for the federal tax credit?

Updated

sonnenCore+ battery affixed to a wall
Energy storage systems qualify for the 30% federal tax credit and can provide you with peace of mind during a power outage. Image source: sonnen

Installing home batteries is becoming more popular every year, especially when installing solar panels. Energy storage comes with a ton of benefits, like providing a source of backup power during a grid outage, reducing a home's reliance on the utility, and in some cases, lowering electricity bills. The problem is that batteries are a pretty significant investment, with typical residential battery systems costing between $10,000 and $20,000.

But, homeowners wanting batteries are in luck - battery installations qualify for the federal clean energy tax credit. The tax credit, sometimes referred to as the solar tax credit or the federal tax credit, can cover 30% of the costs of a battery installation, making it one of the biggest incentives available for energy storage.

Let’s look a little closer at the federal tax credit and how you can claim it for your battery storage installation.

Find out how many solar panels you need to eliminate your electricity bill

Batteries and the federal tax credit at a glance:

  • Residential batteries installed in 2022 can qualify for the 30% federal tax credit so long as they are paired with solar panels.
  • Starting in 2023, standalone batteries installed without solar panels will also be able to take advantage of the clean energy tax credit.
  • The value of the tax credit will vary depending on the equipment installed and labor costs.
  • Popular batteries like the Tesla Powerwall and Enphase IQ 10 can get an estimated tax credit value of between $3,300 and $3,500.
  • The battery must be installed at the taxpayer’s residence, owned by the taxpayer, and charged exclusively with solar energy to claim the tax credit in 2022.

On this page

    How much is the federal tax credit worth for battery installations?

    The federal clean energy tax credit is equal to 30% of installation costs for a variety of clean energy projects like solar, battery, and geothermal heat pump installations. So, if a battery installation cost $10,000, it would receive a tax credit of $3,000. The full 30% tax credit is available until the end of 2032. The tax credit value will step down to 26% in 2033, and down again to 22% in 2034 before expiring in 2035.

    The solar tax credit works like other tax credits where it offsets what you owe in federal income taxes. If your tax liability is less than the value of your tax credit, the remainder of the credit can be carried over to the next year’s taxes. For example, if your tax credit is worth $3,000 but you only owe $2,000 in taxes, the remaining $1,000 can be used to reduce what you owe in taxes the following year.

    How much will a battery system cost with the tax credit?

    The final cost of a battery system will vary depending on the equipment used and the labor costs, which can vary quite a bit. For an average battery installation, you can expect to earn a tax credit somewhere between $3,000 and $5,000.

    The following table outlines some popular battery brands as well as how much the installation of one would cost before and after the tax credit:

    Battery Estimated cost before tax credit* Tax credit value Final cost after tax credit
    Tesla Powerwall $11,500 $3,450 $8,050
    Enphase IQ 10 $11,000 $3,300 $7,700
    LG Chem RESU10H-Prime $10,500 $3,150 $7,350
    Generac PWRcell 9 kWh $14,500 $4,350 $10,150
    sonnenCore+ $11,500 $3,450 $8,050

    *Costs estimates based on available pricing information and estimated installation costs.

    Does the battery need to be paired with solar to get the tax credit?

    Batteries installed before December 31, 2022, need to be paired with solar panels and charged exclusively with solar power in order to take advantage of the federal tax credit.

    Starting in 2023, thanks to the passing of the Inflation Reduction Act, batteries will not need to be paired with solar panels to qualify for the tax credit. This means that both stand-alone battery systems and batteries paired with solar panels will be eligible for the tax credit!

    What if you add a battery to an existing solar panel system?

    You can still qualify for the tax credit if you install a battery and pair it with solar panels that are already installed on your roof. The exact rules around this are a little unclear, but a 2018 ruling by the IRS indicates that battery storage, so long as it is charged 100% with solar energy, can get the tax credit if it's installed after the solar panels.

    Batteries installed after 2023 won’t have to worry about the 100% solar energy rule.

    Can you claim the tax credit and use other battery storage incentives?

    Yes, you can still get the federal solar tax credit when you take advantage of other energy storage incentives. Battery incentives can be offered by state and local governments or utility companies, and the ones that are available will vary by location.

    If the incentive takes money off the upfront cost of the installation, the tax credit will be based on the cost of the system after the other incentive has been taken into account. For example, let's say you live in California and install a battery system for $10,000 and receive a $1,500 rebate through the state's battery incentive program, SGIP. The value of your tax credit would be based on the price after the SGIP incentive, or $8,500.

    If the incentive is through a utility virtual power plant program, where the utility gets to use the energy stored in your battery and in return pays you for the energy it used, the tax credit will still be based on the initial installation cost of the system.

    Keep in mind that other battery incentives could have different qualifications, like requiring the battery to be paired with solar or allowing the utility to have access to the battery.

    What batteries are eligible for the clean energy tax credit?

    Batteries of all brands, chemistries, and costs are eligible for the tax credit. The main criteria you need to meet for a battery to get the federal tax credit are:

    • The taxpayer must be the owner of the battery system
    • The taxpayer must have a taxable income
    • The battery must be installed at the taxpayer's residence
    • The credit can only be claimed on the original installation of the system
    • The battery or batteries must be charged exclusively with solar energy from an on-site solar panel system

    Batteries installed after 2023 must be at least three kilowatt-hours (kWh) in size, but will not have to be charged with solar energy.

    Claiming the tax credit. To claim the federal tax credit, you need to fill out IRS form 5695 while filing your taxes for the year that the installation was completed. It's best to consult a tax expert for details.

    You can bank on the future of energy storage

    Batteries are the key to unlocking a clean energy future, and the 30% tax credit is crucial in getting us there. Right now, battery storage is still very expensive and is a luxury for many homeowners. But, as power outages become more frequent, battery prices get cheaper, and as utilities continue to change how they bill their solar customer, batteries will continue to rise in popularity.

    Homeowners who want to install a standalone battery as a source of backup energy should wait until 2023 to install it so they can also take advantage of the federal solar tax credit. But, for those wanting to go solar and have a battery, there’s no sense in waiting. Solar batteries already qualify for the full 30% tax credit and can offer you peace of mind next time your utility fails to keep your lights on. Our calculator can give you an estimate of how much the tax credit will save you on a solar plus storage system so you can decide if solar batteries are the right choice for you.

    Find out how much you can save by switching to solar
     - Author of Solar Reviews

    Catherine Lane

    SolarReviews Blog Author

    Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.

    Related solar news