What Are Some Available Solar Incentives and Rebates?

Kenneth Wilson

What Are Some Available Solar Incentives and Rebates?

Solar panels are becoming increasingly popular for homeowners as they seek to take advantage of utility savings. Additionally, solar panels have decreased significantly in price over the past decade, making them more affordable than ever. 

However, for many people, solar panels still serve as a fairly significant investment, even if they will pay for themselves and then some overtime. Fortunately, there are a number of incentives and rebates available that will help reduce the cost of purchasing a solar system. Let’s take a look at some of the more popular ones. 

Federal Investment Tax Credit

This is the most important credit to discuss as being federal, it applies to all homeowners regardless of state. This is an investment tax credit for solar energy systems that provides an income tax credit equal to 26% of the cost of your solar system minus any other rebates you received. As a credit, this does not decrease your gross income but rather your tax burden. If you receive a $2,000 credit, your taxes owed are reduced by $2,000. 

It is important to note that this is a limited time credit. In 2023, the credit will decrease to 22%. By 2024, the credit will expire. Taking advantage of this federal credit means having to take advantage of it in the next few years. 

Net Metering

This is not a credit as much as it is a policy that allows you to bank extra value for the energy created from your solar system. Many states have a net metering policy. This means when your solar panels generate more power than is being consumed, the extra power can be sent back to the power grid, generating power for other utility customers. In turn, you can receive credits that lower your own utility bills even further. 

While a majority of states have policies for net metering, the specific policies vary by state, so be sure to look up the policy for your area. Additionally, in states that do not have net metering policies, some utility companies provide net metering to customers as an added incentive for solar investment. 

Solar Renewable Energy Certificates

This is a common type of incentive provided by some states to homeowners who have solar panels. Typically, homeowners receive a solar renewable energy certificate for every 1,000 kilowatt-hours that their system produces. The certificates have a value that varies from state to state, with some states valuing these certificates at $300. 

These types of programs are most popular in the Midwest such as Illinois and Ohio as well as the mid-Atlantic region including Pennsylvania, Maryland, and Delaware. Some states do not have a solar renewable energy certificate market but allow consumers to take part in markets from other states. These states include Michigan, Indiana, Kentucky, and West Virginia. 

Performance-Based Incentives

Some states offer performance-based incentives for solar homeowners which are based on the overall energy production generated by the system. These types of incentives are paid over time rather than as a one-time payment based on the total kilowatt-hour capacity of the system. For example, California operates a solar initiative that pays incentives monthly over the first five years of use by a system. 

As you may expect, performance-based incentives vary significantly by state and are not available in all states. Be sure to check with your own state for guidelines. Some states have an added requirement that the solar equipment installed must be manufactured in the state to qualify for the program. Additionally, some states allow for performance-based incentive programs to exist alongside net metering policies, which can greatly increase the financial benefits of solar power. 

Property Tax Exemptions

There are many ways that states can encourage the use of solar energy. One is to allow homeowners who have solar power to pay lower property taxes. Essentially, through these types of programs, the added value of solar panels is subtracted from the value of the home when it is assessed. Thus, this is not necessarily an extra financial benefit but rather a guarantee that you will not see any financial penalties from adding solar. 

For example, if you install a solar system, and it is assessed at bringing an additional $15,000 of value to your home, that will not be included in the official assessment. This means that you will avoid having to pay taxes on that additional $15,000 of value. 

Sales Tax Exemptions

Another opportunity for states to encourage solar is through sales tax-related exemptions. In these states, the purchase of a solar system is exempt from sales tax. This can significantly reduce the upfront cost for solar systems, making them much more affordable. 

This may not initially seem like a substantial benefit but can have a big impact. For example, if your solar system costs $20,000 and you have a state sales tax of 6%, living in a state with this type of exemption will ultimately save you $1,200. 

Other Places to Look for Credits & Rebates

As you can clearly see from this article, the various incentives for installing a solar system vary significantly from state to state. In fact, the only thing that applies uniformly to all homeowners is the Federal Investment Tax Credit. 

How can you be sure to identify the various credits and rebates available to you for solar? Fortunately, there are many sources of information. Your local solar installer may have up-to-date information on a number of credits. Additionally, your local utility company is a good source of information. 

Additionally, a visit to the Database of State Incentives for Renewables & Efficiency can detail every policy and program in your state. As you’ll discover, there are many options out there ranging from West Virginia with ten to California with 146. Once you click on your state, simply click “solar” from the top menu of renewables to see all incentives. 

Additionally, a call to see if your utility company offers any incentives or cost offsets is another important place to check. Many utility companies provide credits for the purchase or installation of solar systems even in states where they are not required by law to extend them. 

Final Thoughts

While installing solar power for your home is decreasing quickly in cost, some things that make it even more affordable are the variety of credits, incentives, and rebates. A current federal tax credit allows you to deduct 26% of the cost of solar power from your tax liability; however, that credit expires at the end of 2023. 

Additionally, credits and programs available vary considerably from state to state. Many states have things like net metering programs, solar renewable energy certificates, and performance-based incentives that provide financial incentives for solar installation. There are also states that exempt solar panels from things like sales tax and property tax. It is important to check with your individual state for financial incentives as well as your local power company may offer additional incentives. This can greatly decrease the cost of purchasing solar power. 

Kenneth Wilson
February 7, 2021

Kenneth Wilson

Retired contractor. Currently residing in Southwest Florida. Now in semi-retirement, I write and manage this blog focused on helping home owners make savvy decisions when it comes to finding contractors and getting their projects done. I also operate remodeling design service for homeowners.

Ask The Author Your Questions In The Comments!

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

More From This Author