Installing solar systems is becoming cheaper, thanks to the many solar tax credits on offer. Tax credits lower the cost of solar installation by a certain percentage. Besides the nationwide 30% federal tax credit, you can also benefit from state-level solar incentives. Some cities, towns, and municipalities also offer local incentives, costing you little to nothing to install a solar system.
Solar Incentives by State
States offer tax exemptions, credits, and net metering to lower the cost of installing solar systems. In addition to the 30% federal solar tax credit, you can apply to these incentives if you live in a state that offers them. Here is a breakdown of how they work:
Tax Exemptions
Generally, when you install systems that increase the value of your home, the property tax also increases. However, with tax exemptions, this is not the case. Most states offer property tax exemptions for solar system installation.
This means you can install a home battery backup such as the BLUETTI AC500 + B300/B300S, and not pay taxes on the value added. Fortunately, states work with registered contractors to determine if your project is eligible for tax exemptions.
Tax Credits
Some states offer solar tax credits in addition to tax exemptions. They are an extension to the nationwide 30% federal tax credit. They lower the cost of buying and installing solar systems by a specific percentage, which vary depending on the state. Some of the states offering tax credits include Arizona, Maryland, and Colorado, among others.
Net Metering
Net metering allows you to sell excess electricity generated for solar panels to the utility grid for credits. 41 states offer net metering with Texas and Idaho not offering mandated statewide net metering.
Depending on the state you live in, you can benefit from numerous solar incentives. It is therefore important to understand what you qualify for on a local and federal level. Consulting an experienced solar installer can make the process seamless.
Arizona Solar Incentives
The state of Arizona offers several incentives ranging from tax exemptions to tax credits. Here is what they cover.
- Arizona State Residential Solar Income Tax Credit: It covers 25% of solar installation costs. The cost is capped at $1,000.
- Solar sales tax exemption: You receive a 100% tax exemption for solar equipment used in your project.
- Solar property tax exemption: You receive 100% tax exemption for the value added by installing a solar system.
- Net metering: You get credits for exporting excess electricity produced by your solar panels to the utility grid.
California Solar Incentives
California is a hot state with ample sunshine, making it an ideal location to go solar. While the state has fewer incentives, the cost of installing solar systems is extremely cheaper than other states.
- The Self-Generation Incentive Program (SGIP): Eligible to homeowners with a battery storage of up to $1,000 per kWh.
- Property Assessed Clean Energy Financing (PACE): Eligible homeowners benefit from loans with a low interest rate.
- DAC-SASH: Covers installation costs for low-income households in underserved communities.
- Solar rebate: the Rancho Mirage Energy Authority offers a $500 rebate.
- Solar stipend: A $150 stipend eligible to homeowners in Sacramento Municipality.
Connecticut Solar Incentives
Connecticut state has the second-highest electricity price, meaning installing a solar system can reduce your electricity bills significantly. It offers the following incentives.
- Solar sales tax exemption: 100% tax exemption of the sale and use of solar and storage technologies.
- Solar property tax exemption: 100% tax exemption for the value added by installing solar and a battery storage system.
- The Residential Energy Solutions program: Awards homeowners with credits for the electricity solar panels produce.
Colorado Solar Incentives
Colorado offers many incentives than other states. This means installing solar systems is relatively cheaper.
- Solar sales tax exemption: 100% tax exemption for the sale and use of solar and battery storage technologies.
- Solar property tax exemption; 100% tax exemption for value added by installing solar and battery storage systems.
- Residential Energy Upgrade (RENU) loan: A long-term and low-cost loan of up to $75,000.
- Weatherization Assistance Program (WAP): Eligible homeowners benefit from no-cost solar installation.
- Energy Smart Colorado Renewable Energy Rebate: Covers 25% of the project's cost. It is capped at $2,500.
- City of Boulder’s Solar Rebate Ordinance: Covers 15% of the cost of taxes paid for the sale and use of materials and permits.
- Solarize Summit: Eligible residents of Frisco, Breckenridge, and Summit County get rebates amounting to $1,950.
- Solar Rewards: Xcel Energy offers a $1 per watt rebate of installed solar capacity. It is capped at 7 kW.
Florida Solar Incentives
Like California, Florida also has lots of sunshine, making it among the best states to install a solar system. Here are its incentives.
- Property tax exemption: A 100% tax exemption for the value added by installing solar and a battery storage system.
- Sales tax exemption: 100% tax exemption for solar equipment.
- Property Assessed Clean Energy (PACE): Eligible homeowners receive loans with a low interest rate.
- Net metering: Homeowners receive credits for exporting excess electricity to the grid.
- Boynton Beach Energy Edge Rebate: City of Boynton Beach residents receive a $1,500 rebate for solar systems with a 5 kWh capacity or larger.
- Dunedin Solar Energy Grant Program: City of Dunedin residents receive a $0.25 grant per watt. The grant is capped at $2,500.
Ohio Solar Incentives
Ohio is another state that offers numerous solar incentives thanks to its rapid adoption of green energy. In fact, it boasts of over 200 solar installation companies. Here are its incentives.
- Solar Renewable Energy Credits (SRECs): Homeowners receive up to $5 for every SREC produced.
- Sales tax exemption: 100% sales tax exemption on solar systems purchases.
- Net metering: Homeowners receive credits for excess solar they export to the grid.
- ECO-Link program: Low-cost financing for home remodeling or renovation.
- Ohio Property-Assessed Clean Energy (PACE) Financing: Low interest loans for eligible homeowners.
There are also local government incentives such as the Hamilton County Home Improvement Program.
What is The Federal Solar Tax Credit?
The federal solar tax credit covers 30% of the cost of solar system installation, reducing your federal income tax. It should not be confused with tax deduction or tax refund. It is available to anyone in the U.S.. Whether you are a homeowner or a condo owner, you are eligible for the federal solar tax credit. The only requirement is owning a solar system. The credit does not, however, cover leased solar panels.
If you are eligible, you can claim the tax credit for the year you installed and started using the system. And, you can claim it once. If your taxes are less than the credit’s value, you can roll over the remainder into the next year or towards future income tax.
For example, if installing a solar system including the BLUETTI AC300 + 2*B300 costs $10,000 you'll owe $3,000 less in federal tax returns. And if your taxes are less than $3,000, the remainder will be rolled over to the next year.
What Does the Federal Solar Tax Credit Cover?
According to EERE, the credit covers the following expenses:
- Solar panels: It covers the cost of solar panels or PV solar cells. For example
- Contractor labor costs: Covers permitting fees, developer fees, onsite preparation, assembly and installation of the solar system.
- Solar batteries: The credit covers the cost of solar batteries with a 3 kWh capacity or larger. For example, the BLUETTI EP900 + B500 Home Battery Backup, which has a 9,920Wh capacity.
- Solar equipment: It also covers additional equipment such as mounting, inverters, and wiring. Think of balance-of-system equipment.
- Sales tax: covers sales tax on eligible products.
How Do You Claim the Federal Solar Tax Credit?
You can only claim the tax credit once after installing the solar system. We recommend consulting a certified solar installer for a streamlined and efficient process. Ideally, you’ll follow these steps:
- Fill out the IRS Form 5695, providing your tax return.
- Calculate your tax credit in Part I.
- File your solar system as “qualified solar electric property costs,” and enter the total cost of installing the solar system.
- Perform your calculations on lines 6a and 6b.
- You should also list tax liability limitations on line 14.
- Complete your calculations on lines 15 and 16.
- Finally, enter the exact amount (from line 15 ) on line 5 of your Schedule 3 (Form 1040).
Do You Qualify for the Federal Solar Tax Credit?
To qualify for the tax credit, you need to meet the following requirements:
- Your solar system should be installed between January 1, 2006 and December 31, 2034.
- Your solar system is new. You cannot claim the tax credit for repurposing an existing solar system.
- The solar system should be located in your primary or secondary residence in the U.S.
- You must own the solar PV system. The credit is not applicable to leased systems.
- Your residence may be a mobile home, houseboat, cooperative apartment, condominium, or a conventional home.
Final Thoughts
State solar tax credits coupled with the 30% federal solar tax credit, lowers the cost of solar system installation significantly. You need to own the system in your primary or secondary residence to qualify for most tax credits.
