Updated: May 29, 2024
When it comes to buying solar panels for your home,we’ve got good news and better news: the cost of solarpower has fallen over 70 percent in the last 10 years,and there are still great solar rebates and incentivesout there to reduce the cost even further.
The first and most important solar incentive to knowabout is the federal solar tax credit, which can earnsolar owners 30% of the cost to install solar panels backon their income taxes in the year after installation.
States and utility companies also offer several types of solarincentives, and whether you qualify to claim them depends onwhere you live and other factors like your tax status.
On this page, you can learn about the different types of solarincentives available to homeowners. You can also choose yourlocation below to discover the exact mix of solar incentivesoffered by your state and utility companies in your area.
On this page:
Available Incentives Who qualifies for incentives? More information
Solar panel cost calculator
Available incentives
There are several types of solar incentives available for residential solar across the country.Here are the ones most commonly used by homeowners to reduce their solar panel costs and shorten their solarpayback period:
Federal tax credit
The federal solar tax credit offers new solar ownersin the United States a tax credit equal to 30% of costs they paid for their solar installation.
The tax credit is designed to step down to 26% in 2033, 22% in 2034, then settle at a permanent rate of 10% for commercial solarinstallations, and will be eliminated for homes, starting on January 1st, 2035.
Learn more: The federal solar tax credit explained
State tax credits
Several states also offer tax credits for solar power. People who install solar in participating states earnextra money back on their state income tax bill the year after installation.
All state solar tax credits can be claimed in addition to the federal government’s investment tax credit. Theyvary in amount, but are usually a percentage of the total cost of the system. Almost all state tax creditshave a maximum, with current amounts between $500 and $5,000, depending on the state.
Solar panel rebates
States, utility companies, and solar panel manufacturers offer rebates that in most cases immediately reduce the costto install solar panels. Rebates are a dollar-for-dollar reduction in the cost of solar, usually paid directly toinstallers and passed along as savings to the consumer.
Learn more: Solar panel rebates by state
Net metering
Net metering is one of the most important ways in which residentialsolar panels benefit homeowners. Every kilowatt-hour (kWh) ofelectricity your panels make reduces your electricity bill by one kWh.
Solar panels tend to make a lot of energy during the middle of the day,when most folks aren’t home to use it. Some solar energy is used to poweryour home’s appliances, and any extra is sent onto the grid and transmittedto your neighbors. Net metering ensures you get full credit for all thatsolar electricity.
Learn more: What is net metering and how does it work?
Solar Renewable Energy Credits (SRECs)
SRECs are a special kind of compensation for clean energygeneration that are used as an incentive in some states.Each SREC is basically “proof of generation” for one megawatt-hour(MWh) of solar electricity, and they have value to utility companies,who have to prove they’re buying a certain amount of solar energy tomeet state standards.
SRECs are typically sold in a marketplace through brokers that buyfrom energy producers (solar owners). Only a few states offer SRECmarkets, and most solar owners can only sell their SRECs for 5-10years after installation.
The value of SRECs varies widely by state, and is based on thepenalties utility companies face if they don’t comply with therequirements. Income from the sale of SRECs must be reported tothe IRS as part of a seller’s annual income.
Learn more: What is an SREC and how to get the best prices
Performance-based incentives (PBIs)
Another kind of ongoing payment for electricity generation is known as aperformance-based incentive, or PBI. These incentives are typically paiddirectly to the solar owner on their electricity bill as a “bonus” amountfor every kWh of electricity produced by their solar panels.
PBI payments are usually small amounts (under $.30/kWh or so) set forth inlong-term contracts, and typically require the solar owner to sign over theirSRECs to the utility.
Few states offer PBIs. The most important programs of this type include theMassachusetts SMART solar program, the Rhode Island Renewable Energy Growthprogram, and several solar programs from utilities in Minnesota.
Tax breaks for installing solar panels
This category refers to tax incentives for residentialsolar that aren’t direct credits. Several states offer sales andproperty tax exemptions for people who purchase solar installationsfor their homes.
These tax breaks don’t lead to additional direct savings over time, butthey do help solar owners avoid taxes they might otherwise have to pay.
Sales tax exemptions reduce the upfront cost of solar panels, while propertytax exemptions protect solar owners from additional taxes on their home, dueto the solar panels adding value to the home.
Who can qualify for solar incentives?
Whether you can qualify for a solar incentive program depends on a few factors, including:
- Incentive availability in your state
- Whether you have tax liability
- Your annual income
Yes, it’s true: some states don’t offer incentives for solar. In these places,solar can still make financial sense, but not because of anything the statelegislature is doing to help homeowners go solar.
The good news is everyone can qualify for the federal tax credit - as long as they have enough income to owe taxes.“Tax liability” is a fancy way of saying the amount that you pay in taxes.
Your annual income determines how much you owe, and if you make enough(and owe enough, after all other credits), you’ll be able to claim bothfederal and state solar tax credits. In many cases, you can claim thesecredits over multiple years if your tax liability is less than the totalamount of the credits.
Low-income solar incentives
Your annual income can also help you qualify for incentives in theopposite direction. If you make below the area median income inseveral states, you may qualify for low-income grants and rebatesthat can greatly reduce the cost to go solar - even making solarbasically free in some places.
Learn more: Low-income solar incentives by state
Do solar leases and PPAs qualify you for incentives?
In almost all cases, people who get solar panels through a lease orpower-purchase agreement (PPA) do not qualify for any financialincentives. Instead, the solar installation companies can claimthese incentives, especially federal and state solar tax credits and SRECs.
The good news is that people who choose a solar lease or PPA in a statethat offers incentives will likely find the per-kWh electricity pricefrom the solar installer lower than people in states without incentives.
PPAs almost never make better financial sense than buying solar withcash or a loan, but they can be good for people on low or fixedincomes who want to benefit from solar energy, but couldn’t qualifyfor tax incentives on their own.
Learn more: Solar lease vs. solar PPA
Solar incentives available to businesses
Some solar incentives are available only to commercial solar installations.Businesses that install solar can claim the federal solar tax credit,but they also benefit from rules put in place that allow businessesto claim deductions based on certain capital expenses.
These special tax deductions are known as the Modified Accelerated Cost RecoverySystem (MACRS) and bonus depreciation. Both allow businesses to deduct solarexpenses from their income, which reduces their tax burden after installation.
Using both MACRS and bonus depreciation, businesses can greatly reduce the timeit takes to recoup the costs of an investment in a solar energy system.
Learn more: How industrial solar panels benefit businesses
Other places to find solar incentive information
If you’re looking for more information about specific solar incentives, it may help to check outThe Database of State Incentives for Renewables & Efficiency(DSIRE), or look for local solar advocates in your state who are fighting to pass good laws to help people go solar.
Solar incentives change often, in amount and availability, and the best way to get current information is to getsolar quotes from local installers, who have expertise in working with state and local governments. They will beable to assist you in applying for all the incentives you may qualify for.
The SolarReviews solar panel calculator can provide you with estimated system size, cost, and profit afterincentives for your roof - as well as providing live pricing from installers.
