Financial Incentives for Solar Installations
One of the major drivers in the adoption of residential solar energy is the availability of financial incentives—at the federal, state, and local levels—that help eligible homeowners to offset the cost of their investment. According to the Solar Energy Industries Association (SEIA), the federal Solar Tax Credit alone has helped the U.S. solar industry grow by more than 10,000% since it was implemented in 2006.
Solar credits and incentives can represent significant savings in the purchase of a solar energy system. However, incentives vary by location, often have eligibility requirements, and are prone to frequent changes as policies, systems, and programs evolve.
In this article, we offer a quick overview of the residential solar incentives available today, with links to state-specific information and resources. Our solar specialists are familiar with the incentives in your area and can help you navigate the requirements to maximize your short-term and long-term savings.
Note: Your eligibility to receive financial incentives may depend on your tax liability. This article is not tax advice, and you should always consult a tax professional.
Federal Solar Investment Tax Credit (ITC) / Residential Clean Energy Credit
Formerly known as the Federal Incentive Tax Credit or ITC, the newly revised (2022) Residential Clean Energy Credit allows eligible homeowners to deduct up to 30% of the cost of their solar panel installation from their federal income tax liability for the year of purchase.
This is a dollar-for-dollar tax credit based on the sum of all equipment and labor costs incurred during installation, including re-roofs and electrical work. Battery storage may also qualify for the tax credit. Let’s break it down with an example.
Assume you pay $10,000 for a solar system, and have a tax liability of $5,000 in the year of purchase.
- Your Residential Clean Energy Credit would be $10,000 x 30% or $3,000.
- Your tax liability, or the amount you owe in federal taxes, is $5,000 before the credit is applied.
- Your Solar Tax Credit reduces that tax liability by $3,000.
- Your new tax liability for the year of purchase is $5,000 - $3,000 or $2,000.
It’s important to note that tax credits are not a refund or a rebate. Rather, homeowners will need to have a federal tax liability (i.e. they must owe taxes) in order to benefit, among other requirements. If your credit is higher than your total tax liability for the year of purchase, the difference can be rolled over to subsequent years for up to 10 years.
Additional eligibility requirements for the Residential Clean Energy Credit include:
- You must own your solar power system: Leased equipment does not qualify.
- The panels must be installed on your permanent residence or vacation home: Rental properties are not eligible.
- The solar energy system must be new or being used for the first time: Refurbished systems are not eligible.
In August 2022, the Inflation Reduction Act extended the 30% credit by 10 years and retroactively includes projects that have been installed on or after Jan. 1, 2022. After 2032, the credit will begin a phased stepdown: 26% in 2033 and 22% in 2034.
State and Local Incentives
In addition to the Residential Clean Energy Credit, many states, municipalities, and electric utilities offer incentives to further offset the cost of solar for homeowners. These vary by location but our solar Sales Advisors are familiar with the offerings in your area and can help you optimize your returns.
- State tax credits function much like the federal tax credits described above. If eligible, they can be applied as a credit towards your state tax liability.
- Sales tax exemptions reduce or eliminate any sales tax on the purchase of your solar energy system.
- State property tax exemptions prevent property tax increases due to your solar installation. While solar panels will still increase your property value, this will not be reflected in your property taxes.
- Solar Renewable Energy Credits (SRECs), also called Solar Renewable Energy Certificates, allow homeowners to earn and sell credits for the solar energy they produce. SRECs are typically sold through an online intermediary or aggregator, and purchased by utility providers to meet the renewable portfolio standards (RPS) required within their state.
- Net metering and net billing programs are billing mechanisms that credit homeowners for any energy that is produced by their solar panels and not used in their home. Credits are automatically applied to your electricity bill and further offset your energy costs.
Cash rebates, unlike tax credits, are paid upfront to incentivize residential solar installation. They can be offered at the state, municipal, or utility level. In most cases, there is a finite fund available for a limited time or until it runs out.
Click on your state below to learn more about how going solar works in your area and any potential incentives for homeowners.
- New Jersey
- New Mexico
- Rhode Island
- South Carolina
Note that not everyone is eligible to receive these incentives. This article is not tax advice, and you should always contact a tax professional to determine your eligibility.