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The H.R. 5376 Inflation Reduction Act is a proposed bill that includes several provisions related to tax credits for solar energy systems. If the bill were to become law, it could impact the value of tax credits and other incentives related to solar energy, as these may be adjusted to reflect changes in inflation.

The following are some of the key tax credits and incentives related to solar energy that are included in the bill:

  • Investment Tax Credit: The Investment Tax Credit (ITC) has been increased from 26% to 30%, and may now be transferred or sold to other taxpayers. The 30% applies to both business and residential projects, including projects installed in 2022, and will last until the end of 2032. Energy storage projects were previously ineligible for tax credits unless they were connected directly to solar power projects. The Inflation Reduction Act removes these requirements and allows energy storage projects to receive the same 30% tax credit, even if they are stand-alone facilities. Batteries connected to a solar power project will continue to qualify for the credit, even if they are no longer being charged by solar power. Interconnection costs will also be included in the tax credit, for projects smaller than 5 MWac.

  • Clean Electricity Production Credit: The Production Tax Credit is now fully applicable to the solar power industry. If a solar power project meets the prevailing wage requirements, then it will receive a tax credit of 2.5 cents/kWh for the first ten years of the project’s life. If a project does not meet prevailing wage standards, it will earn only 0.3 cents/kWh before adjustment for inflation. Going forward, the production credit increases as it is adjusted for inflation.

  • Domestic Content: Solar power projects eligible for the full 30% tax credit can increase their tax credit by an additional 10% – to 40% in total – by purchasing domestically produced hardware. The bill specifies that 100% of steel and iron must be US manufactured in the United States. For manufactured goods – like solar panels, inverters, and electrical gear – the goods must initially be 40% US manufactured, though this percentage will increase in the future.

  • Project Siting: Projects that are located in former ‘energy communities’ can earn an additional 10% tax credit. Energy communities are defined as brownfields and locations associated with fossil fuels over the last generation.

  • Domestic Solar Hardware Manufacturing: There are tax credits for manufacturing various solar panels, inverters, and racking components.

It's worth noting that some of the details of the legislation are not fully developed, and there are rules that the IRS and Treasury Department will need to develop, publicize, and provide guidance on for more specific detailed tax-related questions.

Overall, if the H.R. 5376 Inflation Reduction Act were to become law, it could have a significant impact on the value of tax credits and other incentives related to solar energy, making it more attractive for businesses and individuals to invest in solar energy systems.

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