The solar industry in the United States is big, and only getting bigger. In the last ten years, solar system installations increased by 20,000 percent! It’s very likely that you know someone (or multiple people) who have installed solar, or are considering it. You might find yourself wondering – how can everyone afford to go solar? That’s a great question, and cost is a major consideration for most people when they’re making a big investment in something like solar.
In addition to the fact that solar begins to help pay for itself instantly in the form of lower electric bills, there’s also a long list of solar incentives that make it a great time to go solar for everyone! We break down some of the best solar incentives currently available for you in this article.
- There are a wide range of incentives available to homeowners and businesses that make going solar an affordable and smart decision.
- Incentives are available at the federal, state, and often local levels, and can be combined to maximize your solar savings.
- The friendliest states for solar tax incentives are: New York, Rhode Island, Iowa, Connecticut, and Maryland.
- To see how much you can save with solar, sign up for the EnergySage Marketplace!
What’s in this article?
- How to pay for solar
- The federal solar tax credit
- Levels of solar incentives
- Friendliest states for solar
How to pay for solar
Before you start installing a solar system on your property, you’ll need to consider how you’re going to pay for it. While solar pays for itself over the years in the form of savings, the upfront cost is what you’ll be faced with before the installation process begins. There are three primary ways that homeowners like you pay for solar: with a cash purchase, with a solar loan, or with a solar lease/power purchase agreement. When it comes to benefitting from solar incentives, you should choose a cash purchase or a solar financing option to get these benefits and make going solar as affordable as possible! Let’s take a quick look at those three main payment options:
A cash purchase of your new solar system is one of the two ways to own your new system outright (the other being taking out a solar loan). If your solar system is designed to provide for 100 percent of your electricity needs, buying it with an upfront payment is like paying for the next 25+ years of electricity bills! But, even though solar will save you money in the long run, a cash purchase of a new solar system isn’t cheap: it can cost you anywhere from $20,000 to $30,000. However, the wide range of solar incentives can help to offset this cost.
Solar loans allow you to own your system, but without the need for a large amount of capital upfront. You can often get a solar loan for no money down, and for many people the cost of the monthly payments is lower than their monthly electricity bills were before going solar! Financing a solar system allows you to maximize the financial benefits of a solar system without requiring tons of cash, and unlike a solar lease/PPA, you are still able to take advantage of any solar incentives that are available in your area!
Solar loans/purchase power agreements
Solar leases and power purchase agreements (PPAs) have declined in popularity as solar has become increasingly affordable, but have played a significant role in the growth of the industry. They are both varieties of third party ownership, in that a company installs solar panels at your property and then sells you the electricity produced by the solar panels at a predetermined rate. With a lease or PPA, you get to lock in a set rate for electricity for the next 25 years, usually ranging from 10 to 30 percent below your current rate. Since you don’t own the solar panel system in this arrangement, you won’t be eligible to receive any of the financial incentives and rebates associated with solar; instead, the company that owns the system will be.
The federal solar tax credit
The investment tax credit (ITC), often referred to as the federal solar tax credit, allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and doesn’t have a cap on how much you can claim. Below we’ll dive into a few common questions about the ITC!
What is the federal solar tax credit?
The ITC was established by the Energy Policy Act of 2005 and was originally set to expire at the end of 2007. It proved to be very popular, and was extended multiple times by Congress, most recently at the end of 2020. The solar investment tax credit is available to homeowners in some form through 2023. Here are the specifics:
- 2020-2022: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.
- 2023: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
- 2024: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.
How does the federal solar tax credit work?
As long as you are the owner of your solar energy system (meaning you purchased it outright with cash or financed it with a solar loan), you are eligible for the solar investment tax credit! Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect – through 2023 for homeowners and 2024 for commercial systems. There is no income limit on the ITC, so solar owners in all tax brackets are eligible, and the ITC can be combined with state and local incentives to maximize your solar savings!
Levels of solar incentives
In addition to the federal solar tax credit, there are a wide variety of state and local incentives that can make going solar even more worthwhile. Between rebates, tax benefits, and other incentives, you can reduce the cost of going solar anywhere between 26 and 50 percent. Here’s a quick look at the different options you might have available to you depending on your location:
State tax credits
Many states have a similar tax credit available to the ITC that functions essentially in the same way, but for your state taxes. The percentage you are able to deduct varies from state to state, but can make a significant impact on the total cost of going solar when combined with the ITC. Check out this full list of available state tax credits.
Cash rebates are often available from state, cities/towns, or utility companies to kickstart solar installations in a region. They can reduce the cost of your solar installation by anywhere from 10 to 20 percent, but are usually only available for a limited amount of time or until a certain amount of solar is installed in an area. Our solar rebates 101 guide is a helpful place to start when trying to understand how cash rebates work.
Solar renewable energy certificates
Solar renewable energy certificates (SRECs) are performance-based solar incentives that allow you to earn additional income from solar electricity generation. They are not available in every state, but in the states where they are available, you can earn one SREC for every megawatt hour (MWh), or 1,000 kilowatt hours (kWhs), of electricity your solar panel system generates.
A performance-based incentive (PBI) is an incentive system that pays you a per kilowatt-hour credit for the electricity that your solar system produces. PBI programs are slightly different from SREC programs in one key way: while SRECs represent the environmental attributes of solar generation (i.e., emission reductions), PBI programs provide an incentive for the electricity produced itself (i.e., the kilowatt-hours of production). PBI incentive rates are determined when the system is installed. PBIs can both replace or exist alongside net metering policies, depending on where you are located.
Solar incentives for businesses
There are a wide range of solar incentives available to businesses, in addition to the ITC, rebates, SERCs, and PBIs. Depending on where your business is located, the various solar incentives available to your business could be worth more than 70 percent of the cost of your solar panel system!
- Modified Accelerated Cost Recovery System (MACRS): a depreciation benefit that allows you to recover the value of your solar assets over an accelerated time frame; for solar this time frame is five years at the federal level. Some states also have MACRS available to businesses.
- Bonus depreciation: a depreciation-based tax incentive available to businesses that invest in solar, but you’re able to take the full benefit in the first year of your investment.
For businesses, you must choose between MACRS and bonus depreciation, depending on what works best for you and your company.
The friendliest states for solar
Going solar is a good investment for most people anywhere, but some states are making it extremely worthwhile to invest in a solar system. The following states are making going solar so cost-effective that residents should be asking if they can afford to not go solar!
New York has the widest range of solar incentives and programs available in the United States. In addition to the federal ITC, they offer:
- The Megawatt Block Incentive, a direct, generous incentive for solar energy available under New York’s ambitious NY-Sun Initiative. The program provides an up front dollars-per-watt ($/W) rebate for both commercial and residential solar panel systems;
- Net metering;
- A solar equipment tax credit of 25% or up to $5,000;
- And the NY Sun Initiative, an umbrella program for many solar initiatives including community solar.
There’s never been a better time to go solar if you’re from the Empire State!
Though it may be the smallest state in the US, Rhode Island is at the head of the pack when it comes to enticing solar incentives. In combination with the ITC, they also offer:
- A solar grant program that can save consumers up to $5,000;
- The Residential Solar Energy Property Tax Exemption, which means your property taxes will not increase as a result of the value your new solar panels add to your home;
- The Renewable Energy Products Sales and Use Tax Exemption, which means you will not have to pay any tax on your purchase of your new solar energy system;
- Net metering;
- And, National Grid’s Renewable Energy Growth program, from which consumers will receive 28.75 cents for each kilowatt-hour (kWh) their solar panel system generates for the first 15 years of their system.
With solar policies like this, it’s only a matter of time before the entire state installs solar panels!
Residents of Iowa are in luck when it comes to solar incentives. When stacked with the ITC, theses incentives make it a no-brainer to go solar in Iowa:
- Favorable solar easement and rights laws that allow you to install even in the face of things like HOAs that might otherwise get in your way;
- Net metering;
- A five year property tax exemption for the value of your solar system;
- And, a sales tax exemption for electrical equipment that will save you six percent on your purchase price.
Take advantage of these incentives by signing up for the EnergySage Marketplace.
If you’re thinking about going solar, Connecticut is a great place to do it. On top of the ITC, residents are able to stack the following incentives:
- The Smart-E energy efficiency loan program of up to $40,000 for 5-12 years at a 4-7 percent interest rate;
- Net metering;
- The Sales and Use Tax Exemption for Solar and Geothermal Systems, which means that you won’t have to pay any taxes on the purchase of your system;
- And, the Property Tax Exemption for Renewable Energy Systems, which means you won’t have to pay any additional taxes on the increased value of your home as a result of installing solar.
Connecticut’s plethora of incentive options makes it an easy decision to install solar in the Nutmeg State.
Mayland has set ambitious clean energy goals, and is backing them up with great solar incentives. Residents can take advantage of the ITC and the following incentives:
- The Maryland solar rebate program that will pay you $1,000 for installing a solar system;
- One of the best SREC incentive programs in the country;
- Net metering;
- The Property Tax Exemption for Solar and Wind Energy Systems, keeping you from paying any extra taxes on the increased value of your home due to solar;
- And, a tax-free purchase through the Sales and Use Tax Exemption for Renewable Energy Equipment.
If you’re a Maryland resident, you can help the state meet its goals by lowering your electric bills and saving with solar!
Take advantage of solar incentives with the EnergySage Marketplace!
The EnergySage Marketplace is the nation’s leading online solar marketplace: when you sign up for a free account, we connect you with solar companies in your area, who compete for your business with custom solar quotes tailored to fit your needs. Over 10 million people come to EnergySage each year to learn about, shop for and invest in solar. Sign up today to see how much solar can save you!