How the 2025 Battery Storage Tax Credit Boosts Residential and Commercial Adoption

The U.S. battery storage market is gaining traction, thanks to supportive policies like the federal Investment Tax Credit (ITC). As of 2025, this credit continues to serve as a powerful financial incentive, making both residential and commercial battery energy storage systems more accessible. Here’s a closer look at how tax credit works and what it means for homeowners, businesses, and the wider energy transition.

Understanding the Battery Storage Tax Credit

Why It Matters: Energy Independence and Grid Resilience Battery storage systems play a vital role in stabilizing power grids, enabling energy stored during off-peak periods to be discharged during high-demand times. This not only boosts grid resilience and offers backup power during outages, but also supports decarbonization goals by reducing reliance on fossil fuels. The ITC effectively lowers the upfront cost barrier, accelerating the adoption of these systems nationwide.

2025 Residential Tax Credit Guidelines Homeowners in the U.S. can continue to claim a 30% tax credit in 2025 under Section 25D of the Internal Revenue Code. Eligible systems must:

• Have a capacity of 3 kWh or more
• Be newly installed and used in the taxpayer's primary or secondary U.S. residence
• Not be installed on rental properties

The credit covers the cost of equipment, labor, and related wiring, with no cap on the total amount. While the credit is non-refundable, unused portions can roll over to future tax years. To claim the benefit, homeowners must submit IRS Form 5695.

2025 Commercial and Utility-Scale Incentives For commercial and utility-scale systems, the ITC is governed by IRS Section 48. The base credit is 6%, but increases to 30% for projects that meet prevailing wage and apprenticeship standards. Additional bonuses apply for systems that use domestic materials or are located in qualified energy communities, with a potential total benefit of up to 70%.

Projects under 1 MW automatically qualify for the 30% rate without needing to meet labor conditions. Eligible businesses must install new systems before January 1, 2025. The IRA also enables credit monetization through direct payments or transfers, adding value for organizations with low tax liabilities.

Eligibility and Claim Process To qualify for the 2025 ITC:

• Residential systems must be new, installed in a home owned and occupied by the taxpayer, and meet the 3 kWh capacity threshold
• Commercial systems must be new and operational during the tax year of the claim

Homeowners must file IRS Form 5695 and businesses use IRS Form 3468. Supporting documents such as receipts and installation contracts must be retained. Consulting a tax professional is recommended to ensure compliance.

Looking Ahead: Timeline and Phase-Down While the 30% credit remains in effect through 2032, reductions begin in 2033—dropping to 26%, then 22% in 2034, before expiring in 2035. For optimal returns, residential and commercial stakeholders should consider installing eligible systems before the phase-down begins.

Conclusion

The 2025 battery storage tax credit represents a significant opportunity to reduce upfront costs and advance energy resilience across the U.S. With no requirement to pair systems with solar and expanded benefits under the IRA, battery adoption is expected to rise. Businesses and homeowners that act early can maximize their financial benefits while contributing to a cleaner, more stable energy future.