With more and more incentives coming in, going solar is getting more viable for US citizens. However, it still requires a heavy upfront investment. On average, a solar power system cost comes to around $16,000-$20,000.

Fortunately, the state and federal governments offer numerous incentives to help you cover your investment and earn a significant profit on them. It is because of this very reason that number of Americans using a solar system is expected to become more than triple by 2030.

What are these incentives? How can you claim them, and will Biden give more such subsidies in the upcoming future? Please read the entire article to find our answers to these questions.

Federal Solar Tax Credit

Probably the most well-known and the most lucrative solar incentive, federal solar text credit is available to everyone who has a solar system. According to this scheme, the Investment Tax Credit (ITC) will give a 26% tax credit on the solar-powered system’s investment cost. However, you need to ensure that your taxable income is more than the credit offered to avail of this benefit.

In most cases, this translates to a 26% tax refund on your solar system cost. This means that if you spent around 30,000 on your solar system, the ITC would provide you with $7,800 in the form of tax credits.

How Does the Federal Solar Tax Credit Work?

As explained in the example above, if your solar cost comes up to $30,000, a 26% tax credit would save you around $7,800 on your federal returns. This credit is automatically deducted from the annual tax that you pay. However, the discount keeps rolling over to the next year if the tax that you know is less than the credit.

Solar Panels on RoofAny US homeowner can claim this federal solar tax credit, provided that the solar system is installed in an American residential location. There is no compulsion to install the system at your primary or secondary residence.

The system must be in service and produce electricity throughout the year to be eligible for the benefit. This means that if you install solar panels for your home energy in 2022, you’ll receive a tax credit for your 2022 filings. On the other hand, if you start installing your solar system in 2022 but don’t start using it until 2023, you’ll get the tax credit for your 2023 filings.

What all Does The Solar Investment Tax Credit Cover?

Homeowners who install a solar PV system in 2021 can get a 26% federal solar tax credit for the following expenses:

  • The total cost of the solar panels
  • Cost of additional equipment like wiring, investors, and mounting hardware.
  • Energy storage devices, including solar batteries that run exclusively on solar power.
  • Taxes paid for the installation of the solar system.

Eligibility For the Federal Solar Tax Credit

Here are the specific points that you must meet to be eligible for the federal solar tax credit while filing your returns.

  • Your solar PV system must have started generating electricity from any time between January 1, 2006, to December 31, 2021.
  • You must be the direct owner of the solar PV system. It doesn’t matter if you paid upfront or are financing the cost.
  • The solar system must have been used for the first time. It means that you can only claim credit for the original installation. So, if you move places and take your solar panels with you and install them at your new residence, you won’t be eligible for another benefit.

How to Claim The Federal Solar Tax Credit

The solar tax credit is claimed as a part of the federal solar tax credit. If you get your solar PV system installed by a certified company, it will provide you with all the necessary documentation and steps to avail of the benefit. Here is a general overview of claiming the federal solar tax credit.

  • Download the IRS 5695 form straight from their website.
  • Enter the entire project’s cost on line 1 and then complete the calculation of lines 6a and b.
  • If solar is your renewable energy addition, you can skip down to line 13 and ignore the rollover credit clause.
  • Account for any tax liability limitation. You can do this by using the residential energy property credit limit worksheet.
  • Complete the calculations on clauses 15 and 16.
  • Copy the figure from line 15 to schedule 3, line 5.

Please remember that the tax credit is only applicable on your annual return. If your final taxable income tax is less than the credit amount, the credit is rolled over to the following year.

Can You Claim The Federal Solar Tax Credit Twice?

No, you can only claim the solar tax credit once for a singular installment. If you plan on taking your existing installment and using it in the different residential areas, you won’t get any extra credit for it.

Renewable Energy Certificates

Solar PanelsRECs are a type of financial incentive that allows citizens to pay for renewable energy production without obtaining the energy from renewable energy sources. These are used with electric utilities to follow the state’s renewable energy portfolio standards. Other products such as green certificates can also be used to purchase renewable energy production in areas where the authorities do not provide a green power purchase agreement.

Solar Incentives Offered by States

Other than the federal tax credits, different states offer benefits in various capacities to boost the use of solar energy. California, Texas, Minnesota, and New York provide the maximum solar panel tax credit.

The terms and conditions of such benefits vary vastly from state to state. Therefore, it would be best to consult the Database of State Incentives for Renewables and Efficiency for more clarity.

Here are some of the most common state tax credits available in different parts of the country.

Tax Credits

State tax credits in the solar industry work in the same way as the federal tax credits, but it takes different remunerations into consideration. These incentives don’t affect your federal tax credit. The exact amount varies from state to state.

Rebates

Several state governments offer rebates for the installation of solar panels. One downside of these incentives is that they are usually available only for a limited amount of time till the state has spare funds.

Therefore, you should do thorough research regarding the rebates in your state to make sure you don’t miss out on them. These incentives can reduce your overall solar cost from 10% to 20%.

Net Metering

Net metering is a performance-based incentive given as a dollar for dollar reduction concerning every KWh of energy generated. Solar companies control these metrics, and the per-unit remuneration differs from state to state.

Other Great Solar Incentives To Lookout For

Other than the discussed state and federal tax credits, there are a few other local incentives that can help you make up for your solar investments.

Domestic Utility Company Rebates

Local authorities often provide incentives to homeowners to install solar panels. Some of these rebates are offered based on the energy policy act. This means that the benefit amount keeps increasing according to the solar energy produced by the system. Some utilities even provide one-time subsidies to encourage solar energy production.

Low-interest Loans

States, local authorities, and even professional financial guidance companies offer low-interest loans for solar PV system investment. It is best to discuss the prospect of subsidized loans with your installer since they are likely to know the most viable financing scheme.

Tax Exemptions

Other than tax credit on federal income tax and state tax credits, you might also be eligible for additional tax exemption to cover the system cost. Some authorities don’t even include the cost of your solar PV system’s installment in assessing property taxes, even when it raises the price of your house. This means that your property bill will not increase with the solar investment.

Moreover, some states even offer tax exemptions on all solar equipment. This can literally save you thousands of dollars when you draft out your system’s installation cost.

Benefits of Using Solar Energy System

We looked at the different financial incentives the state and federal governments offer to encourage people to go solar. But, how will it help you as a consumer in other ways?

Here are some of the benefits you can avail of from investing in a solar PV system for your home.

Cheaper Energy Bills

Rooftop Solar PanelsWhether you reduce your energy bills, eliminate them, or even earn a profit on them depends on the area you live in and the amount of electricity produced by your solar panels. If you live in a sunny area, you’ll probably get sunlight for 5-6 hours every day. This will produce ample solar energy and make your energy bills negligible.

Take home Tax Credits and Incentives

The federal tax credit of 26% on your federal income taxes and other state tax credit can help you significantly bring down your solar investment. If you live in a state like Washington, you can save over $900 per month on federal taxes and state income taxes by seeking professional tax advice.

Immediately Start Saving

There is no waiting period when it comes to solar savings. Most of the incentives, including the 26 federal tax credits and other state benefits, start right from the day your system starts producing electricity.

Statistics show that solar installation can increase the value of your home by 6,000 per installed KWh. For example, if you have a 3KWH solar PV system, it can add up to $18,000 to your property’s value.

Frequently Asked Questions on Solar Incentives

What is the value of the solar tax credit in 2022?

The federal tax credit is valued at 26% of the total installation cost from the federal income taxes. After this year, new solar customers can deduct 22% of the installation cost from their taxes.

Can you claim the solar tax credit if you’re not the owner of the house?

This is possible only under exceptional circumstances. You must either be a tenant-stockholder at a cooperative housing corporation or a member of the condominium complex to claim the non-refundable tax credit.

Can you claim the credit if you’re not connected to the grid?

All you need to claim the solar incentive is to have a solar PV system that generates electricity. You don’t need to be connected to any electric grid.

Summing It Up

Due to all such incentives, the USA is moving toward making renewable energy its primary source of domestic production at a swift rate. A well-curated combination of all such benefits can help you save a lot of money on your solar system installation.

These subsidies and property tax exemptions take nothing away from the fact that installing a solar PV system is still a hefty investment. However, these benefits can soften the financial load and even help you make a profit on your investments.

Consult a professional financial advisor today and make the most of your solar investments.