Ahh, solar incentives. They’re wonderful! And they’re critical to consider when determining how much solar will cost you. You may be eligible for national incentives, as well as state, local, and utility-specific incentives depending on where you live.
Let’s dig in.
Good news! The Federal solar Investment Tax Credit (ITC) was extended! See below for details. (January, 2021)
Nationally available incentives
Federal solar investment tax credit (ITC)
Homeowners and business owners who go solar can make use of the Investment Tax Credit (ITC) offered by the federal government. The tax credit is a percentage of your system cost—and there’s no cap on the amount.
The ITC is a one-time, non-refundable credit that you receive when you file your taxes for the year you had your solar array 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.
The good news: This tax credit was set to end in 2021, but it was extended until 2023. Yay!
The bad news: The credit decreases over time. Boo.
Here’s the plan, as it stands:
- 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
Additional Resource: IRS Instructions for Form 5695 (residential tax credit)
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! Huzzah!
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.
USDA Rural Energy for America Program (REAP)
Are you a farmer or a rural small business owner? If so, you may be eligible for a grant or loan for your solar array from the U.S. Department of Agriculture.
- The USDA Rural Energy for America Program (REAP) provides competitive grant funding and guaranteed loan financing to agricultural producers and rural small businesses for renewable energy systems and energy efficiency improvements.
- Agricultural producers with at least 50 percent of gross income coming from on-site agricultural operations are eligible to apply for competitive grant funding and guaranteed loan financing through REAP. Small businesses in eligible rural areas also can apply.
- Competitive grants are available for up to 25 percent of total eligible project costs. Loan guarantees are available for up to 75 percent of total eligible project costs. Combined grant funding and loan guarantees are available for up to 75 percent of total eligible project costs.
Solar renewable energy credits (SRECs)
SRECs can be one of the most confusing parts of going solar. But depending on where you live, they could be worth a significant amount of money over the life of your system. So, it’s important to understand them. Let’s break it down.
When you generate solar electricity from your system, you also generate an associated “green value” for that electricity. This is called 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. In some states, these credits have a monetary value that the system owner can capture.
The value of SRECs varies over time depending on supply and demand and the state’s rules governing this incentive.
Other state, local, and utility-specific incentives
Some states and local governments offer incentives to residents who install solar.
These incentives can come in the form of:
- Waived permitting fees
- Tax credits
- Additional assistance for low-income homeowners
Search this database of state incentives for renewables and efficiency. It’s the most complete resource on solar incentives in the country. You can search incentives by state.
We’ve compiled additional information about solar incentives in some states. Are you looking for information that isn’t covered here? Contact us.