Even though solar energy is cleaner and way more sustainable than fossil fuels, the total amount of electricity produced in the US with it is less than 2 percent. This is because the initial investments can get pretty high, especially for mid to large-sized homes. That’s why, the government has introduced many financial incentives in the form of tax rebates.
What’s that you ask? Well, under the tax credit program, you can claim a portion of your solar installation cost on your tax returns. This can greatly reduce the amount of money you have to invest initially to go the solar route. That’s not all though. Because, apart from tax credits, you can also get other state benefits such as property tax relief.
Read on to learn more about what sort of financial incentives you can expect for solar and what states offer the most incentives for that.
Solar Incentives You Can Get in 2024
While the federal incentive is available to every US citizen, some incentives are only available in certain states. With that being said, let’s now take a look at what incentives you can expect to get if you choose to install solar in 2023.
1. Federal Tax Credit
Since 2005, homeowners are able to claim a percentage of their total cost for solar panel installation. Originally, it was around 30% but was lowered to 26% later on. However, after the Inflation Reduction Act, it was bumped back to 30 percent again and is said to stay that way till 2032. Not only that, a separate tax credit for solar batteries is added too under the federal solar incentives.
Therefore, based on the average cost of $23,940 for a solar system installation, the solar tax credit value received by the average American amounts to about $7,182. The amount is said to be reduced to 26% in 2033 and 22% in 2034. Unless extended, the tax credit for solar panels is said to be discontinued after 2034.
2. State Tax Credit
Apart from federal tax credits, some states offer similar tax credits for solar installation. This, combined with the federal tax credit, can save up a significant amount of money for homeowners. However, at the moment, not all states offer the state tax credit for going solar and the exact amount you can save can vary depending on which state you live in. For example, the state of New Your offers a 25% tax credit for solar which maxes out at $5000.
Currently, these states offer the most incentives for homeowners who wish to go solar: New York, Idaho, Illinois, Maryland, Oregon, South Carolina, Massachusetts, Washington, and Texas.
3. Net Metering Credits
If you don’t know what net metering is, it’s a billing mechanism that allows homeowners with solar panels to feed the excess electricity their panels produce to the gridline. In exchange, they get metering credit from their utility company that they can use against their electricity bills. However, exactly how much you will save depends on where you live. While some states provide the metering credits at a retail rate, others offer a decreased value.
4. Property Tax Reduction
One of the things most homeowners worry about installing solar panels is that it will increase the size of their property and therefore there will be a tax increase. However, that’s not true. Most states offer a tax exemption for solar panels, even though it increases the size of your property. At present, at least 36 states offer tax exemption for solar panels and other renewable energy systems. In states like California, the exemption is 100%, so you’ll face no increase in property tax after installing solar panels.
5. Sales Tax Reduction
Homeowners installing a solar power system may enjoy additional benefits depending on the state they reside in. One such benefit is the exemption from sales tax, which can vary from state to state. Typically, sales taxes range from 4 to 7%, and this exemption can result in savings of over $1,000 for an average-sized solar system. This can further lower your initial investment, allowing you to reap the full benefit of free electricity even faster.
6. Other Rebates
Apart from federal and state rebates, some solar utility companies too, offer rebates to homeowners. It can either be in the form of a financial incentive to the homeowner, or to the installation service providers. This way, you can either get a cost reduction upfront, or you can save significantly on the installation. For example, Pacific Gas and Electric Company in California offer a 15 to 20% rebate on solar batteries. And if you live in an area that is prone to power outages, you can get up to 100% rebate on the batteries.
7. Solar Renewable Energy Credits
Currently, in 30 states and the District of Columbia, electric utilities are required to generate a certain amount of electricity from renewable sources. Additionally, eight states have non-binding goals for renewable energy. To encourage this, the government rewards residents who contribute to meeting these goals.
If you live in one of these states, your solar panels can earn you solar renewable energy certificates (SRECs) for each unit of clean energy produced. Public utilities will purchase these certificates from you to fulfill their renewable energy requirements, further lowering the cost of your solar installation.
State-Wise Financial Incentives in the USA
At the time of writing this article, all states except Indiana, Arizona, Utah, Iowa, New York, Oregon, and New Mexico offer a 30% federal tax credit for homeowners who choose to install a new solar power plant in their homes. For the above-mentioned states, you can expect anywhere from 22 to 25% tax credit.
For other benefits and financial incentives, you need to contact your local authority as well as your local utility company. Remember, even if your state offers no state tax rebate, you can still be eligible for Solar Renewable Energy Credits and net metering credits.
Frequently Asked Questions and Answers (FAQs)
Is solar lease eligible for financial incentives?
No, if you are leasing a solar power plant, the installer is still the owner of the system. So, you won’t be eligible for any financial incentives and benefits.
What expenses are included in financial incentives?
The incentives may include: Solar PV panels or PV cells cost, contractor labor costs for onsite preparation, assembly, and original installation, including permitting fees, inspection costs, and developer fees. It also includes balance-of-system equipment such as wiring, inverters, and mounting equipment and sales taxes on eligible expenses.
Can I claim the credit, if I meet all requirements but am not a homeowner?
Yes. The good news is, as long as you contribute to the cost of an eligible solar system, you can claim the credit and other benefits. However, if your landlord installs the solar system, you can’t claim the credit yourself.
Final Thoughts
With both short and long-term incentives, going the solar route can prove to be more beneficial than you think. With federal tax credits, the initial investment of $23,940 can be as low as $16,758 which the panels will pay off in about 8 to 10 years. And with a high service life of 15-25 years, you can expect to enjoy free electricity for the next 10 years at least. To make sure you don’t miss out on any of the financial incentives, we recommend you seek professional tax advice or refer to IRS Form 5695.