Incentives & Tax Credits
Discover everything about Solar Incentives and Tax Credits, including eligibility, how it works, and more in this article.

Solar Incentives & Tax Credits: Homeowner’s Guide 2024

The Federal Solar Tax Credit — also called the Investment Tax Credit (ITC) — is one of the most widely available solar incentives in the U.S., as it's available to all taxpayers. In my opinion, with years of researching solar incentives and installation costs, it's the single best solar incentive in the country, and it's one you definitely don't want to miss out on. In this article, I'll explain what credit is, how it works, how to claim it, and more.

What is the Federal Solar Tax Credit?

The Federal Solar Tax Credit can effectively offset a large portion of your solar installation costs by crediting your federal income tax bill with 30% of your system installation total. Given the average system cost of $23,940, the typical ITC amount is $7,182.

The federal credit was just recently improved and extended via the Inflation Reduction Act (IRA). As the credit exists now, it will be available at 30% until 2032. It will drop to 26% in 2033, 22% in 2034, and then will no longer be available from 2035 forward.

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How Does a Tax Credit Work?

If you’re a homeowner, you can claim the Solar Tax Credit for the total cost of your solar panel’s equipment and original installation to reduce the amount of money you owe when filing your federal tax return.

The credit received is calculated to apply a tax deduction for that tax year. For example, if you receive $500 in credit, you’ll owe $500 less on your tax payments.

It’s worth noting that a tax credit isn’t the same as a tax refund since you must owe taxes to the federal government to receive a deduction. In the event that you don’t owe any tax money, you wouldn’t receive any money for your tax credit.

What is Covered by the Federal Tax Credit?

At the time of writing this article, you’ll receive a credit on your current tax bill in the amount of 30% of your total system costs, including the equipment and the labor costs to install it. That includes the following:

  • Panels
  • Solar batteries
  • Inverters
  • Conduit and wiring
  • Electric vehicle (EV) chargers
  • Installation labor
  • Solar permits
  • Interconnection fees
  • Anything else included on your solar installation invoice

Eligibility Requirements for the Federal Solar Tax Credit

Most taxpayers who go solar in the U.S. are eligible for the solar tax credit, but there are some exceptions. Most notably, you must own your system, which means you cannot take the credit if you lease your panels or enter into a power purchase agreement (PPA). Thankfully, property type does preclude residents from taking the credit, so those who own single-family residences, multi-family homes, mobile homes, apartments, condominiums, and manufactured homes can apply.

Additionally, you can claim the Solar Tax Credit for rental properties, although you must reside there for at least a portion of the year. For this circumstance, you need to calculate a percentage of what you can claim depending on how much time you spend in the rental property every year.

Here are some general criteria that should make you eligible:

  • You installed or will install a solar project between January 1, 2006, and now.
  • The solar system is installed on your primary or secondary place of residence.
  • You haven’t leased your solar system or signed a PPA.
  • The solar system installed is new or used for the first time (you can’t apply if it was previously installed in your primary residence before you moved in).
  • You owe income taxes for the year you installed the panels or the four years after the installation is completed.
  • You and your home are located in the U.S.

How Long Does the Federal Solar Tax Credit Last?

The ITC is expected to drop from 30% to 26% in 2033, then to 22% in 2034, and will no longer be available for systems installed in or after 2035.

Can I Carry Unused Credit Forward?

Yes, once you file for the credit, you can take advantage of it for up to five years, depending on how much you owe in taxes. If you can only take part of the credit in year one, you can roll over any remainder to the following year for up to five years from the date of installation.

Is There a Maximum Limit on the Federal Tax Credit?

Fortunately no, there is no cap on the federal solar tax credit. That means that, no matter how large or expensive your residential solar system is, you'll still be able to take 30% of that total and deduct it from your income taxes owed for up to five years.

Other Solar Incentives, Rebates, and Tax Credits

Aside from the Solar Tax Credit, there are other incentives and rebates to owning your own solar panels. Below, you’ll find a selection of the ones to look out for. Keep in mind that these vary based on your location.

State Government Solar Rebate

The State Government Solar Rebate allows each U.S. state to offer an incentive that’s unique to them and can be different from offerings in other states. I recommend checking the DSIRE database (Database of State Incentives for Renewables and Efficiency) for information on state tax credits in your area.

State Solar Incentives

There are unique incentives based on your location in the U.S. Below are some of the most appealing incentives for each U.S. state, which were available at the time of writing:

  • Arizona: 25% state solar credit with a maximum of $1,000 personal income tax reduction.
  • California: Single-Family Affordable Solar Housing (SASH) Program: Low-income homeowners who receive their electricity from PG&E, SCE, or SDG&E could qualify for cash incentives for every kilowatt (kW) of solar power.
  • Colorado: 9% home solar system state sales tax exemption.
  • Connecticut: Connecticut Green Bank Residential Solar Investment Program (RSIP): Applies to purchased solar systems with an upfront cost reduction of $0.426 per installed watt.
  • Florida: Home Solar System State Sales Tax Exemption: 6% home solar system state sales tax exemption.
  • Hawaii: Honolulu Solar Property Tax Exemption: Property tax exemption on the added home value from the rooftop panel system.
  • Illinois: Illinois Solar for All (ILSFA) Low-Income Community Solar Programs: Low-income homeowners can obtain solar panels in this state with a $0 upfront cost.
  • Massachusetts: Solar Massachusetts Renewable Target (SMART) Program: Compensation per kilowatt-hour produced by a solar power system.
  • Maryland: Residential Clean Energy Rebate Program (R-CERP): You may qualify for a $1,000 rebate if you purchase and install a new solar power system.
  • Nevada: NV Energy Residential Energy Storage Incentives: You could save money by adding a new home battery to a solar panel system.
  • New Hampshire: Residential Renewable Electrical Generation Rebate Program: A cash incentive of up to $1,000.
  • New Jersey: Solar Investment Property Tax Exemption: A property tax exemption on the total value of your home.
  • New Mexico: New Solar Market Development Income Tax Credit: A 10% state credit for home solar systems.
  • New York: NY State Solar Energy System Equipment Tax Credit: 25% tax credit for new home solar systems.
  • Pennsylvania: Philadelphia Solar Rebate Program: A $200 rebate for every kilowatt (kW) of solar power installed.
  • Rhode Island: Rhode Island Renewable Energy Fund (REF): Receive funds of up to $7,000 for small-scale solar panel systems.
  • South Carolina: South Carolina Solar Tax Credit: A 25% tax credit for new home solar systems.
  • Texas: TXU Energy Home Solar Buyback Plan: Bill credits for any excess solar power a solar system creates.
  • Vermont: Green Mountain Power’s (GMP) Bring Your Own Device (BYOD) Program: Receive up to $10,500 toward a new home battery system.
  • Wisconsin: Focus on Energy Home Solar Rebate: Obtain a $500 rebate for a solar panel system cost and installation.

For an in-depth look at the solar incentives available in your state, please select it from the tool below:

To find the Solar Incetives in you state, select it from the dropdown menu below.

Electric Utility Rebate

This program provides incentives for solar equipment installations that meet the necessary requirements, and they're offered by individual utility companies. You can check the DSIRE database for availability in your area, or you can contact your electricity provider.

Payments from Renewable Energy Certificates (SRECs)

SRECs are performance-based solar incentives that let you earn credits based on your solar energy generation, which you can then sell if your state has an open SREC market. If you’re a homeowner, you can earn one SREC for every megawatt-hour (equivalent to 1,000 kWh) of electricity that your solar panel system creates.

Low-interest Solar Financing Loans

Depending on your location, credit score, and other factors, you might be able to access a discounted interest rate on loans to purchase and install a solar power system. Typically, the rate can be as low as 3.99%, which is below the industry average of 5% to 7%.

Net Metering Programs

Net metering is a perk that grants you credits for each kWh you overproduce and send to the grid. In some areas, you can call on those credits to offset consumption when your panels aren't producing sufficient energy. In other areas, you're credited a portion of the cost of each kWh you export.

In my experience, net metering is one of the most beneficial perks available, alongside the federal tax credit. Unfortunately, I've seen a lot of states downgrading their programs as they reach their renewable portfolio standard (RPS) goals and as more homeowners adopt solar energy.

USDA REAP Grants

These grants are available for homeowners and small businesses that pay up to 50% of the total cost of installing and purchasing a solar panel system. The USDA REAP Grant program is also receiving a boost from the Inflation Reduction Act that was signed until August 2022.

Bonus Depreciation

If you apply this tax incentive, you can take 100% of the depreciation value of your solar system in the first year to bring down your tax bill even further.

Can You Combine Solar Incentives with the Federal Tax Credit?

Yes, it is absolutely possible to combine state solar incentives with the federal tax credit. Just ensure that you meet all the requirements for each.

I've also seen a lot of confusion among solar customers who also have access to a state tax incentive. When you have the opportunity to take both the federal and a state tax credit, they won't interfere, and you'll be able to claim both to reduce your tax burden.

How to Claim the Federal Solar Tax Credit

In order to claim the Federal Solar Tax Credit, you need to file an IRS Form 5695 for your tax year. When I filled out my form, I needed the following information:

  • The total cost of the system
  • The name and contact information for the installation company
  • The location of your home
  • The total size of the system and the expected output

All of this information should be available on your solar project invoice.

After you fill out the form, you’ll need to calculate the credit amount on Part 1 of this form and enter the final figure on your 1040.

Remember, the IRS provides this tax refund as a credit, so you won’t receive money for the amount you’ve spent on your solar panel system. However, you’ll receive savings as a credit on your tax bill. You can push the full credit or any portion of it forward for up to five years, which gives you the opportunity to take full advantage even if your tax burden is minimal the first year.

The Impact and History of the Federal Solar Tax Credit

The Federal Solar Tax Credit began in 2005 under the Bush Administration, and it was scheduled to last until the end of 2007. Originally, the Solar Tax Credit provided a 30% credit on the total cost of any solar system, but it was capped at $2,000.

In 2020, this amount was reduced to 26% and was set to decrease 2% per year until 2024, when it would be abandoned. In 2022, the Inflation Reduction Act (IRA) was passed, which extended the ITC for a decade and pushed the credit amount back up to 30%.

The Impact

With the extension of the ITC, more than 95 Gw of solar energy are expected to be installed in the U.S. in the coming decade. This amount of solar energy is expected to generate electricity to power 19 million homes. Solar energy should also equate to 3.5% of U.S. electricity, whereas it was 0.1% in 2010. Additionally, solar energy should offset 100 million metric tons of carbon dioxide emissions by 2034 when the credit is phased out.

Is Solar Worth it?

A solar PV system is an effective way to source renewable energy, helping to save money on outgoing costs and decrease the impact of sourcing energy on the environment. Not only that, but the average solar customer in the U.S. saves enough on their energy bills from solar panels to pay off their systems and then save an additional $22,000 or more. With incentives like the Federal Solar Tax Credit, you can reap the rewards of purchasing and installing a new system if you reside in the U.S. without paying full price for a solar array.

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FAQs About Federal Solar Incentives

Can I use the Solar Tax Credit if I’m not a homeowner?

Yes, but only in specific circumstances, such as being a tenant-stockholder. In most cases, only property owners will be able to file for the tax credit.


If the tax credit exceeds my tax liability, do I get a refund?

No. If the tax credit exceeds your tax amount, you won’t receive a refund for this difference. You can, however, carry over unused credit to future tax years for up to five years.


How many times can I claim the Solar Tax Credit?

You can only claim the Solar Tax Credit once. Even if you install a solar array on another home if you move or have an investment property, you cannot file for the credit a second time.


How long can a Solar Tax Credit be carried forward?

Any portion of the credit you can’t claim for the tax year in which your system was installed, you can carry forward for up to five years. For any of those years, you can take any remaining portion of the credit.


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