While the cost of solar has declined significantly over the last decade, it’s still a sizable investment for home and business owners looking to lower their electric bills. To encourage the greater adoption of solar, the federal government, state, and local governments, and even some utilities offer incentives to make putting solar on your roof and powering your home with clean energy more affordable and accessible. These energy savings typically take the form of solar rebates, tax benefits, or performance-based incentives, and can reduce the cost you pay for solar from anywhere from 30-50%!
Key takeaways
- The best solar incentive is the federal investment tax credit, which provides a credit worth 30% of your system costs on your federal tax bill.
- You may be able to further lower your installation costs through solar rebates from your state or utility company, installer, or equipment manufacturer.
- If you’re a business owner, you may qualify for additional solar incentives that could lower your solar energy system price by about 70%!
- Some of the friendliest states for solar include New York, Rhode Island, Iowa, Connecticut, and Maryland.
- Visit the EnergySage Marketplace to compare multiple quotes from vetted solar installers.
Major solar rebates and solar incentives
- Investment tax credits
- State tax credits
- Cash rebates
- Net metering
- Solar renewable energy credits (SRECs)
- Performance-based initiatives
- Incentives for businesses
- Subsidized loans
- Tax exemptions
Why the Investment Tax Credit is the best solar incentive
The federal investment tax credit (ITC) is far and away the best solar incentive, providing 30% of your solar project costs as a credit towards your federal income taxes. Instead of a deduction, which reduces your taxable income (as would happen with any charitable donations you make in a year), a tax credit directly offsets what you would otherwise owe in taxes. Instead of just being taxed on a lower income, the federal ITC offsets what you actually owe in taxes, and can even come back to you as a refund from the IRS if you’ve overpaid your taxes during the year (but it won’t exceed your tax liability). Here are the specifics:
- 2016 – 2019: the energy tax credit remained at 30% of the cost of the system.
- 2020 – 2021: owners of new residential and commercial solar earned a credit of 26% of the cost of the system for their federal income tax bill.
- 2022 – 2032: owners of new residential solar can earn a credit of 30% of the cost of the system for their tax bill. Commercial solar systems will also be eligible for 30 percent until 2025, at which point the U.S. Department of Treasury will determine if the ITC will continue for commercial systems.
- 2033: owners of new residential solar can earn a credit of 26% of the installation costs of the system for their tax bill.
- 2034: owners of new residential solar can earn a credit of 22% of the installation costs of the system for their tax bill.
- 2035: there is no federal credit for residential solar energy systems starting this year.
Learn more about the investment tax credit, including FAQs.
How can you claim the Investment Tax Credit?
There are 3 main steps to claiming the ITC:
- Determine if you’re eligible: To be eligible for the Federal ITC, you need to own your solar system (rather than lease it) and live in it for part of the year. You also need to have enough tax liability (the ITC is not a refund), though you can carry over any remaining credits to the following years, as long as the ITC is in effect.
- Complete IRS Form 5695: This form validates your qualification for renewable energy credits. To complete the form, you’ll need to enter your solar energy system costs, determine your tax liability, and calculate your tax credit.
- Add your credit value to Schedule 3 and IRS Form 1040: Finally, you’ll need to enter your tax credit value to the Schedule 3 form (and attach it to Form 5695) and to your regular tax form, Form 1040.
For more information, read our full instructions on how to claim the ITC.
Do states offer tax credits?
Some states offer additional tax credits for installing a solar photovoltaic panel system, functioning much the same way as the federal ITC does but for your state taxes. These amounts vary significantly by state, but, when paired with the federal ITC, can really add up!
What types of solar rebates exist?
Some states, municipalities, and utility companies offer up-front rebates for installing a solar panel system. Three primary types of rebates exist: government or utility company rebates, installer rebates, and equipment manufacturer rebates.
1. Rebates from state governments and/or utility companies
Rebates from your state and/or utility company can further lower your system costs by 10-20% and are generally only available for a limited time, disappearing once a certain amount of solar has been installed in your region. They can sometimes involve an intricate application process, but these types of rebates are often the most lucrative, making it well worth any extra effort.
The rules behind applying for state or utility rebates are typically stricter than the requirements for other types of rebates. You may find that there are restrictions on the type of equipment you can use, on minimum or maximum system size requirements, or on which installers you can work with (and what certifications/licensing they need). For example, to claim the Megawatt Rebate incentive in New York, you need to work with a pre-vetted, state-approved contractor.
Because of these regulations, applying for a state or utility rebate often requires submitting detailed information about your solar equipment and system design, performance expectations, project costs, and/or installation company. More often than not, your solar installer will apply for these types of rebates on your behalf, or assist you with the process. Keep in mind that your local government and/or utility company may not pay you out for the rebate directly; sometimes, they give the rebate to your installation company, who simply subtracts the incentive amount from what they charge you.
2. Rebates from installers
You may come across some installation companies offering seasonal rebates and other types of limited-time promotions to customers that move forward with them. If that’s the case, you likely don’t need to deal with a separate rebate application: you’ll simply sign the installation contract, and they’ll take the rebate amount directly out of your total costs.
3. Rebates from solar equipment manufacturers
Solar equipment manufacturers are increasingly offering rebates for installing their products. If your solar panel or inverter company has a promotion like this, you can likely apply for the rebate directly on their website. In order to receive the rebate, you may need to provide proof of installation, such as a photo, signed contract, and/or verification from your utility company that your system is up and running.
Some manufacturers also partner with EnergySage to offer rebates to people who install their products after finding an installer through our platform. If you’re claiming an equipment rebate through EnergySage, you’ll work directly with us once to receive the incentive once your system is up and running.
How you can earn credits for solar production with net metering
When the sun’s shining, your solar panel system will likely produce more electricity than you need. If your state or utility company offers a net metering policy, you’ll receive credits from your local utility company for this excess electricity that you send to the grid. When you need to pull electricity from the grid, it will count against the credits you’ve banked over time. At the end of your billing cycle, you’ll only be billed for your “net” energy consumption. Sometimes, your bills will even be $0 or show a credit balance with net metering!
What are solar renewable energy certificates?
Many states now have renewable portfolio standards, which require utilities to procure or generate a certain percentage of their electricity from renewable resources, including solar power. If you live in one of these states, your solar panels will create solar renewable energy certificates (SRECs) for the amount of electricity produced by your solar panel system. Utilities buy your SRECs as a form of compliance with state-level renewable energy requirements, given that each SREC is representative of the environmental attributes of your solar generation. Selling your SRECs can result in hundreds (or even thousands) of dollars more per year in income, depending on the SREC market in your state.
What are performance-based incentives?
Another common form of solar incentive program is the performance-based incentive, or PBI, which pays you a per kilowatt-hour credit for the electricity that your system produces. PBI programs are slightly different from SREC programs in one key way: while SRECs represent the environmental attributes of solar generation (i.e., emission reductions), PBI programs provide an incentive for the electricity produced itself (i.e., the kilowatt-hours of production). Unlike SRECs, PBIs don’t have to be sold through a market, and incentive rates are determined when the system is installed. PBIs can both replace or exist alongside net metering policies.
Do special solar incentives exist for businesses?
In addition to the ITC, rebates, SRECs, and PBIs, there are some solar incentives only available to businesses.. Depending on where your business is located, the various solar incentives available to your business could be worth about 70% of the cost of your solar panel system!
- Modified Accelerated Cost Recovery System (MACRS): a depreciation benefit that allows you to recover the value of your solar assets over an accelerated time frame; for solar this time frame is five years at the federal level. Some states also have MACRS available to businesses.
- Bonus depreciation: a depreciation-based tax incentive available to businesses that invest in solar, but you’re able to take the full benefit in the first year of your investment.
For businesses, you must choose between MACRS and bonus depreciation, depending on what works best for you and your company.
Financing incentives: Subsidized loans
You may be eligible to finance your solar panel system purchase using a subsidized solar loan with a reduced interest rate. These loans may be offered by your state, a non-government organization, or your utility company, but are usually only available for a limited time.
Are solar panel systems tax-exempt?
Some states and municipalities don’t include the value of solar panel systems in property taxes assessments. This means that, even though the value of your property has increased by the addition of a solar power system (by 4% on average!), your property tax bill won’t increase; – it will remain the same.