The Federal Solar Tax Credit is the most popular, benefiting homeowners in every state. An enabler to a smooth transition to sustainable living, it has gained wide adoption since its inception in 2005.
This has seen states also introduce their tax credits. This article looks at these tax credits that when combined with the Federal program, can reduce the cost of solar installation significantly.
What Is the Federal Solar Investment Tax Credit?
Now referred to as the Residential Clean Energy Credit, it is bound to run till 2034. The program was created in 2005 in a bid to make the adoption of solar energy easier and cost-effective.
Initially intended to run through 2006, it has been extended several times with changes in the tax credit. For example, in 2020, the amount was lowered from 30 percent to 26 percent. In 2022 the amount was increased to 30 percent and is set to remain so for 10 years.
How Does the Federal Solar Tax Credit Work?
Different persons can qualify for the tax credit. From mobile homes, condominiums, apartments, single-family homes, and multi-family dwellings. You can also qualify if you own a rental property. However, you’ll need to live there for several months.
Once the solar installation process is complete, you can apply through the IRS. However, you can claim the credit once and the credit is a deduction not a refund.
You are eligible for the tax credit if you installed your solar system between 2006 and December 31, 2034. Owners of the solar panel system are also eligible and those that have installed it in their primary or secondary residence.
What Does the Federal Solar Tax Credit Cover?
The tax credit covers several aspects of solar installation. They include the following:
- Solar panels
- Labor costs (onsite preparation, installation, inspection, developer fees, permit fees)
- Mounting, wiring, and inverters
- Solar batteries with a 3kWh rating or higher. A perfect example is the BLUETTI EP800+B500 Home Battery Backup. Installing this battery system automatically qualifies you to Federal Solar Tax Credit.
- Sales tax
How to Claim the Federal Solar Tax Credit?
As mentioned, you can claim the credit tax once the solar installation is complete.
- File IRS Form 5695 in your tax return.
- Part I should be the credit of the tax form.
- File your system as “qualified solar electric property costs”
- On line 1, enter the total cost of your solar project. It should reflect that in your solar contract.
- On lines 6a and 6b, complete the calculations
- line 14 should include calculations of any tax liability limitations. Use the IRS’s Residential Energy Efficient Property Credit Limit Worksheet
- Complete your calculations on lines 15 and 16
- On line 5, enter the exact amount from line 15 of your Schedule 3 (Form 1040)
Solar Tax Credit By State
Here are solar tax credits and incentives offered by the following states. When combined with the federal tax credit, they can reduce the cost of solar installation significantly.
California Solar Tax Credits and Incentives
California is a sunny state making it an ideal place to install a solar system. Unlike other states, California has fewer incentives since solar is more affordable than buying electricity from the grid.
At the state level, California offers property tax exemption for any value added by solar installation. It also offers the Self-Generation Incentive Program (SGIP) to homeowners who have installed battery storage of up to $1,000 per kWh. There’s also the Property Assessed Clean Energy (PACE) financing that allows homeowners to finance installation of solar systems.
Colorado Solar Tax Credits and Incentives
Colorado state passed an energy bill in 2023 that allowed homeowners to receive financing when installing solar systems. While it offers net metering, Colorado residents can also benefit from the 100% sales and use tax exemption for solar and solar battery equipment
It also offers 100% property tax exemption for any value that solar and batteries add to your property. The BLUETTI AC300 + 1*B300 | Home Battery Backup is such a battery system that can see you not only benefit from this tax credit but also the Federal program.
Homeowners can also benefit from long-term financing up to $75,000 through the Colorado Residential Energy Upgrade Loan.
The state also runs the Weatherization Assistance Program (WAP) that seeks to offer no-cost solar installation to qualifying candidates.
Connecticut Solar Tax Credits and Incentives
Connecticut is among the top states with high electricity costs. This makes solar systems an ideal cost-effective option for homeowners. While there are not many solar incentives, homeowners can benefit from the sales and tax exemption that allows them to save up to 6.35% of the solar system’s installation cost.
The state also offers 100% property tax exemption for any value that solar technologies and batteries add to the property. There’s also the Residential Energy Solutions program that makes installation of a solar system hassle free.
The Residential Energy Solutions offers homeowners two options: buy-all and netting option. The former allows homeowners to sell all electricity produced by the solar panels to the local utility company. The latter is similar to the net metering program.
Florida Solar Tax Credits and Incentives
Florida is yet another state with appealing tax credits. Like California, Florida has abundant sunshine making it an ideal place to go solar. State incentives include 100% property tax exemption for value added by solar or battery storage.
There’s also a sales tax exemption for solar technologies. Homeowners also benefit from the Property Assessed Clean Energy (PACE) financing. It makes solar system installation cost-effective and profitable.
And if you opt for the net metering program, you’ll sell electricity at retail rates. The local government also offers solar incentives such as the Boynton Beach Energy Edge Rebate and the Dunedin Solar Energy Grant Program.
Illinois Solar Tax Credits and Incentives
If there’s a state with lucrative solar taxes, it is Illinois. The sunny state introduced the Adjustable Block Program in 2019, which saw many homeowners adopt solar energy in droves. It awards participating households with one renewable energy credit for every 1,000kWh produces. This can then be sold on the market for cash.
If your solar system can produce 10,000kWh per year in 2023-2024, you can earn anywhere between $10k and $12k over 15 years.
The state offers several incentives such as the special property value assessments that prevent the value raised by solar technologies to be taxed. There’s also the Illinois Solar for All program that seeks to install solar systems in low-income households.
Texas Solar Tax Credits and Incentives
Like California, Texas has ample sunshine ideal for setting up a solar system. Unlike most states, the tax credit is at the utility and local level. However, Texas offers the property tax exemption for value added by solar technologies.
If you are in Texas, consider installing the BLUETTI 2*AC300 + 2*B300 + 1*P030A | Home Battery Backup and enjoy reduced solar system installation costs.
Ohio Solar Tax Credits and Incentives
Ohio offers several incentives that make installing a solar system a lucrative venture. This explains why there are over 200 solar installation companies in the state. Like other states, you get the net metering program, which may differ between utility companies.
It also offers the Solar Renewable Energy Credits (SRECs) to participants. There’s also the 100% sales and property tax exemption for solar technologies. The ECO-Link program provides low-cost solar financing to qualifying candidates.
New Jersey Solar Tax Credits and Rebates
New Jersey is one of the states with the best solar tax credit. Combined with the federal solar tax, a homeowner can reduce solar installation costs by over 50%. It offers 100% tax exemption on solar sales.
100% property tax exemption for the value solar technologies add to your property. And perhaps the most valuable incentive, New Jersey Successor Solar Incentive Program (SuSI).
New York Solar Tax Credits and Rebates
There’s no doubt that New York is the only state that offers the best incentives to homeowners. Like New Jersey, the rebates can cover over 50% of the solar installation costs.
The state offers several solar incentives such as the 15-year property tax exemption for value added by solar technologies. There’s also a 25% tax credit for solar costs. It also offers sales tax exemption on solar and battery technologies.
Maryland Solar Tax Credits and Incentives
Maryland, like New Jersey and New York states, has incentives that can reduce the cost of installation. The state-level incentives include 6% sales tax exemption for purchases of solar technologies.
It also offers 100% property tax exemption for the value that solar technologies add to your home. Homeowners can also benefit from the Energy Storage Income Tax Credit, which covers 30% of the total solar battery cost.
The Residential Clean Energy Rebate awards a homeowner $1,000 while the Solar Renewable Energy Credits (SRECs) award a homeowner $57.50 for every 1,000 kWh produced.
Massachusetts Solar Tax Credits and Incentives
Like other states, Massachesetts offers tax credit and a rebate program. There’s a 100% tax exemption on solar purchases. Homeowners also benefit from the 100% solar property tax exemption for 20 years.
The state also offers 15% tax credit for costs up to $1,000. If you combine this with the federal tax credit, you can save on solar installation costs
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A Comprehensive Guide To Solar Tax Credits
Final thoughts
Tax credits allow homeowners like you to install solar systems at a reduced price. The most popular tax credit is the Federal Solar Tax Credit. Offering 30% tax credit, it allows you, regardless of the state you are in, to enjoy a 30% off the installation cost. States such as Massachusetts and Maryland also offer tax credits and incentives
