IRS Ruling Could Mean Tax Credits for Solar Battery Storage
Tesla electric vehicle and Powerwall.
Battery storage systems that are charged totally from solar power may qualify for the 30 percent federal investment tax credit for solar power systems.
The IRS ruled that a storage facility could qualify for the 30% federal investment tax credit (ITC) only if it is charged 100% via the onsite solar. However, the Internal Revenue Service private letter applied only to an individual case in response to a taxpayer's request for clarification.
Still, it's a step forward in recognizing that battery storage is a key ingredient in shift power generation to renewable energy.
"Reducing barriers for taxpayers is an important action this Administration can take to continue growing this industry and to create thousands of new jobs," said Kelly Speakes-Backman, CEO of the Energy Storage Association.
Battery storage systems are getting cheaper so it's easier homeowners with solar systems to cut ties to the grid or provide backup in the case of power outages.
Keep in mind the private letter ruling was issued to a single taxpayer, so it applies only to that specific case. The IRS says the letter doesn't set a precedent for other cases, but it does provide insight into how the IRS is interpreting the tax law. According to the IRS letter, Section 25(d) of the federal tax code specifies that a solar water heater may qualify for the investment tax credit when at least 50 percent of the power it uses comes from the sun. No such language exists for energy storage in the code, however, which led the IRS to conclude that 100 percent of a battery's power must come from the sun to make it eligible.
The battery and solar system don't have to be installed at the same time; the main stipulation is the battery receives power from only from the home's solar panels and not the power grid.
Most rooftop solar customers in the U.S. are still tied to the grid, and most do not have backup batteries. The Tesla Powerwall is one of the most well-known systems, with a price tag of $7,000 or more in addition to the solar modules.
The ESA is urging Congress to pass tax incentives for energy storage devices used with other renewable resources.
"In particular, we urge Congress to pass bipartisan, bicameral legislation (S. 1868 & H.R. 464) that clarifies eligibility of energy storage for both the Section 48 and 25D ITC, which would unlock storage to pair with all energy technologies -- like gas power plants, wind turbines, and building HVAC systems – in addition to solar power," said Speakes-Backman.
Larger utility scale storage systems operate under a different IRS interpretation. Commercial facilities must be charged at least 75 percent by solar energy to qualify for the tax credit, with the value of the credit depending on the amount of electricity produced by the sun.
According to the National Renewable Energy Lab, a system charged by renewable energy 80 percent of the time is eligible for the 30 percent investment tax credit ITC multiplied by 80 percent, which equals a 24 percent tax credit.
Read more about home solar power.