The last few years have seen solar adoption rise across the United States. But what’s fueling this expansion? The answer is simple: solar tax incentives. With the many incentives available to American consumers, solar energy is more affordable than ever, and people are taking advantage of it. Let’s discuss what it takes to qualify for these incentives and how you can take advantage of them.
Are There Tax Incentives for Solar Panels?
Yes, there are tax incentives for solar panels. These incentives are available at a state and federal level across the United States, so you can benefit regardless of where you live. The only stipulation is that you must be tax-liable to benefit from these programs. If you don’t owe taxes at the end of the year, you aren’t gaining anything with the credit.
How Do Solar Tax Incentives Work?
Solar tax incentives work differently depending on which ones you qualify for, whether state, local, residential, or business. Generally, though, they fit the same mold. Contractors install solar panels, you fill out an additional form for your taxes, and your overall tax burden is reduced. You have to keep track of documentation, but any tax preparer worth their salt can ensure you get your incentives.
Can a City Provide a Solar Tax Incentive Credit?
Yes, cities can and do provide solar tax incentive credits. The incentives vary between cities, so you should check local ordinances to determine eligibility. If you’re still shopping around for solar, ask your contractor what’s available. They should understand who does and doesn’t qualify for city solar tax incentives and which cities have them.
Do You Get a Tax Refund from the Solar Tax Credit?
No, you do not get a tax refund from the Solar Tax Credit, per se. The credit lowers the total amount you owe instead of returning to you as a check. If you’ve overpaid your taxes throughout the year, you can still expect to get a tax refund for the overpayment. However, that amount doesn’t come from the Solar Tax Credit itself.
7 Solar Tax Incentives You Need to Know About
You probably won’t qualify for every incentive available for solar panels, but regardless of your situation, you should know about the following seven. While they aren’t all “tax” incentives, they all impact your finances (for the better).
Solar Investment Tax Credit
The Solar Investment Tax Credit (ITC) is the most noteworthy incentive available for Green Energy. It allows you to deduct 30% of your total solar panel system cost from your taxes, which means you’ll face a significantly lower tax bill at the end of the year. To be clear, that money doesn’t come back to you as a check. But it lets you keep your wallet full with more money throughout the year, which is a significant benefit as the everyday cost of living rises.
There are a few things to note. First, if your tax credit exceeds your tax bill, you can roll the credit forward to the next year. However, you have to be tax-liable to qualify. If you never owe taxes, you can’t benefit from the ITC. Additionally, you have to own your panels. That means you don’t qualify for the credit if you lease or sign onto a PPA. There’s no cap for the credit, so it scales with your solar panel install cost regardless of how much you spend.
Residential Clean Energy Credit
The Residential Clean Energy Credit is essentially the same as the solar investment tax credit, and you’ll often see the two terms used interchangeably. However, there are some differences between how the two are talked about on government websites, so it’s worth familiarizing yourself with both terms.
If you look at the Residential Clean Energy credit, you’ll see additional language that includes coverage for the cost of solar batteries, solar water heaters, wind turbines, and more. It’s still a 30% credit; you must be tax-liable to qualify. There isn’t any method to “double dip” for these credits, as you report both the Residential Clean Energy Credit and Solar Investment Tax Credit on Form 5695.
State Tax Credits
Most states offer some form of tax credit for homeowners who decide to install solar panels. There are too many to list here, but the DSIRE website has a comprehensive database of state solar tax incentives for you to peruse. A solar contractor can also help you know what you qualify for at a state level. They can explain the ins and outs of the solar incentives and who qualifies. That said, verifying the information with your tax preparer is a good idea.
Rebates
Rebates are available for solar panel installations across the United States. For example, the Energy Trust of Oregon offers a rebate for households who install solar panels. Notably, the rebates can affect how much you get from your Solar Investment Tax Credits, as they change the “installed price” of your system. While we aren’t tax experts — and our lawyers insist we tell you this isn’t tax advice — you will typically save money by claiming both rebates and the Solar Investment Tax Credit, even though it lowers the ITC.
Solar Renewable Performance Based Incentives
Performance-based incentives, or PBIs, offer homeowners compensation based on how well their system performs. The most common PBI is net metering, which gives homeowners credit for their electricity bills every time they send excess power to the grid. Alternatively, you can install a solar battery to save that excess for later use, which also reduces the amount you pay for electricity.
Property and Sales Tax Exemptions
Solar raises your home value by about 4% on average. The immediate added value to your home is one of the biggest perks of installing solar panels, especially because that additional value is tax-exempt in most states. While there are exceptions, 36 states offer solar tax exemptions. It’s worth looking into what your state offers to see how you’ll be affected.
Low-Income Solar Incentives
Several states have solar incentives for low-income households to make Green Energy equitable. These programs differ greatly but usually offer the homeowner money based on the installed watts. For example, the Energy Trust of Oregon’s Solar Within Reach Program pays low-income PGE customers $1.00 per watt installed. The program caps at $6,000, but there’s an additional incentive for those installing batteries.
These incentives make going solar far more accessible for countless families. By taking advantage of them, you too can install solar panels on your home.
