(January, 2021: Federal Tax Credit extended! See below for details.)
One of the most important factors in determining how much solar will cost you are the incentives available in your area.
You may have heard of the federal Investment Tax Credit, or ITC, but there are actually four types of solar incentives.
- Federal Investment Tax Credit (ITC)
- Solar Renewable Energy Credits (SRECs)
- Property Assessed Clean Energy (PACE)
- State and utility incentives
The federal government offers residential and commercial solar owners an Investment Tax Credit (ITC). The credit is a percentage of your system cost—and there’s no cap on the amount.
The ITC is a one-time, non-refundable tax credit that you receive when you file your taxes for the year when your solar array was installed. You can roll over the tax credit to subsequent years if you’re unable to use all of the credit in the first year.
This tax credit was set to end in 2021, but it was extended until 2023. The credit decreases over time:
- 2021 – 26% of system cost
- 2022 – 26% of system cost
- 2023 – 22% of system cost
- 2024 and beyond – no credit for residential systems and 10% for commercial systems
How do I get the tax credit?
In most cases, your solar installer will give you a receipt for the total cost of your system after it’s installed. You can then give this receipt to your accountant and receive a tax credit off the total cost of your system.
If you can’t realize the full value of your credit in the first year, you may be able to roll it forward to reduce your tax burden in subsequent years.
Eligibility for the tax credit happens after a system has been “placed in service,” as stated in the tax code. What that means is a gray area. According to the Solar Energy Industries Association (SEIA) a conservative interpretation would be when your system is ready to be connected to the grid. This is confirmed in the IRS FAQ.
To be sure, we recommend that you consult with a tax expert or accountant. We’re not tax experts at Solar United Neighbors, so we can’t offer tax advice.
Can I include roof improvement or replacement costs in the credit?
No, not in most circumstances, according to an FAQ on the IRS website. It says, “In general, traditional roofing materials and structural components do not qualify for the credit.”
What about battery storage?
The ITC does apply to battery storage! Solar owners who install a battery system at the same time as their solar panels can roll the storage costs into their tax credit (given the battery is charged entirely from the solar).
In March 2018, the IRS indicated that folks who already own a solar system can retrofit their solar array with battery storage and take the full tax credit for the cost of their battery installation.
Solar renewable energy credits (SRECs)
Have you ever heard a solar installer, or a friend with solar, talking about “ess-recs?” This is what they mean.
When you generate solar electricity from your system, you also generate an associated “green value” for that electricity. This is known as a Solar Renewable Energy Credit, or SREC (pronounced ess-rec).
Every time your system produces 1,000 kWh (1 MWh) of electricity, you earn one SREC. The value of SRECs varies over time, much like a stock.
SRECs can be the most confusing part of going solar. However, it’s important to understand them. They could be worth a significant amount of money over the life of your system, depending on what state you live in.
Property assessed clean energy (PACE)
The PACE model is designed to expand access to energy upgrades by creating access to low-cost, long-term project financing. PACE-financed projects can include energy efficiency improvements, renewable energy systems, or a combination of the two.
Here’s how PACE financing works: As a building owner or homeowner, you contact your local PACE administrator, who secures financing for your solar project. You then repay that financing over a period of multiple years through a special assessment on your property tax bill or utility bill.
State and utility incentives
Some states opt to offer state- or county-level incentives to residents who install solar. They can come in the form of grants, waived permitting fees, or additional assistance for low-income homeowners.
Some utilities also offer special incentives for their customers. See if there are utility-specific incentives available to you — check with your utility or check out our state-specific info here.
- Database of state incentives for renewables and efficiency – The most complete resource on solar incentives in the country. You can search incentives by state.
- Solar Investment Tax Credit (ITC) – A resource page from the Solar Energy Industries Association on the federal tax credit.
- Residential Energy Efficient Property Credit (Section 25D) at a Glance – A quick overview from the IRS on the federal tax credit.
- SRECs – A video from 1BOG on how SRECs work.
- SREC FAQs – SREC basics from SolSystems.
- Solar Renewable Energy Certificate (SREC) Markets: Status and Trends – A deep dive into SRECs and SREC markets from the National Renewable Energy Laboratories.
- What is PACE? – A PDF from PACENation on the basics of property assessed clean energy.
- PACE programs near you – An interactive map shows active and coming PACE programs.
- Mid-Atlantic PACE Alliance – A resource for PACE programs in the Mid-Atlantic.
- Why a utility front organization is wrong about solar incentives – Explanation of how an Edison Electric Institute report misleads the public about the benefits of rooftop solar.
We’ve compiled additional information about solar incentives in some states. Are you looking for information that isn’t covered here? Contact us.