Understanding Solar Tax Credits and Incentives
One of the most significant financial benefits of going solar is the availability of tax credits and incentives designed to reduce the overall cost of your system. Understanding these programs is key to maximizing your return on investment.
The Federal Solar Investment Tax Credit (ITC)
The most substantial incentive for most homeowners is the federal solar Investment Tax Credit (ITC), now often referred to as the Residential Clean Energy Credit. This credit allows you to deduct a percentage of the cost of installing a solar energy system from your federal taxes.
- Credit Amount: As of the latest legislation (Inflation Reduction Act), the credit is typically 30% of the total system cost for systems installed between 2022 and 2032. The percentage may decrease in subsequent years.
- Eligible Costs: This generally includes solar PV panels, inverters, mounting equipment, energy storage devices (batteries) installed with the solar system, balance-of-system equipment, and labor costs for assembly and installation.
- Eligibility: You must own the solar energy system (not lease it), the system must be located at your primary or secondary residence in the U.S., and it must be new or used for the first time. You also need sufficient tax liability to claim the credit.
- Claiming the Credit: The credit is claimed when you file your federal income taxes for the year the system was installed and became operational. You'll likely need to complete IRS Form 5695, Residential Energy Credits.
For the most current details, refer to the official IRS guidance and the Department of Energy resources linked below.
DOE: Homeowner's Guide to the Federal Tax Credit
IRS: About Form 5695, Residential Energy Credits
State and Local Tax Incentives
Beyond the federal ITC, many states, counties, and even cities offer additional tax benefits:
- State Tax Credits: Some states offer their own tax credits that can be claimed in addition to the federal ITC.
- Property Tax Exemptions: Many states exempt the added value of a solar panel system from property taxes, meaning your property taxes won't increase even though your home value does.
- Sales Tax Exemptions: Some states exempt solar energy equipment from state sales tax, reducing the upfront cost.
These incentives vary greatly by location. Check the DSIRE database for incentives specific to your state and locality.