The U.S. government is doing a great job of encouraging more and more people to shift to solar as their primary source of energy. Several incentives have been rolled out by the state, both at a national and district level, to facilitate the evolution of solar energy.
The cost of solar panels has indeed declined over the last few years, but it is still a significant investment for house and business owners to lower their electricity bills. To encourage the adoption of solar energy, the US government offers some incentives to make solar energy more viable.
This article will provide you with all the information you need regarding the rebates, tax credits, and other incentives you can avail of by moving to solar renewable energy.
Let’s get started.
- 1 Federal Solar Tax Credit (FSTC)
- 2 Solar Rebates and Incentives By The State Government
- 3 Some Other Solar Based Incentives
- 4 Final Words
Federal Solar Tax Credit (FSTC)
FSTC is one of the state’s most significant incentives to encourage people to install solar photovoltaics. However, to understand the nuances of the Federal Solar Tax Credit. You first need to understand what is a tax credit.
What Is a Tax Credit?
A tax credit is a dollar-to-dollar deduction in the income tax that you are liable to pay. It means that 1 tax credit would exempt you from 1 dollar of income tax. For example, if you have 5,000 tax credits, you’ll have to pay 500 Dollars less in your annual income tax.
What is Federal Solar Tax Credit?
It is a type of credit that you can claim on the income tax for a share of the cost of a solar photovoltaic system. You can avail this credit if the system has been placed in the tax year and generates electricity for a home located in the United States.
According to an extension of the ITC in 2020, 26% tax credit is to be provided on systems installed in 2020-22, and 22% for systems installed in 2023. Moreover, systems installed before December 31, 2019, are entitled to a whooping credit of 30%. There is no limit on the maximum amount that can be claimed.
Eligibility Criteria For Federal Solar Tax Credit
You have to fulfill specific parameters to be eligible for the Federal Solar Tax Benefits. These parameters are as follows.
- Your solar panel must have been installed between January 1, 2006, and December 31, 2023.
- You can avail this credit only on the original installation of the system.
- You own the solar panel and use the energy generated for your own consumption.
- The solar photovoltaic system is installed at your primary or secondary location of residence.
You need to understand what all of your charges come under the Federal Solar Tax Credit Scheme.
Here is a list of all the expenses that are included.
- Solar power that is used to power the attic fan
- Sales taxes on eligible expenses
- Labor cost for onsite preparation, assembly, or original installation, including permit fee and other charges
- Balance of system equipment, including wiring, inverters, and mounting equipment
- Cost of the energy storage device charged exclusively by the associated solar PV panels
How Does Federal Tax Credit Affect Other Incentives?
FTC can impact the other benefits provided by the State and Central government. To draw a detailed comparison of all the rebates, you can check out the database of state incentives for renewables and efficiency website.
- Rebate From Electric Utility to Install Panel – The subsidies provided for the installation of panels are often excluded from income tax. The utility rebate for installing the solar panel is deducted before calculating your tax credit.
- Payment for Renewable Energy Certificates – If your utility gives you a cash amount in exchange for your renewable energy certificates, that income is considered as taxable income. This means that it will increase your gross income but not reduce your federal tax credits.
- State Tax Credit – State tax credit does not affect federal tax credit and vice versa. However, when you receive state tax benefits, the taxable income that you’ll report for federal tax will be more because you have less state income tax to deduct.
- Rebate from the State Government – This does not decrease your federal tax credits. Your FTC will be calculated in the same manner irrespective of your refund from the state government, provided that the solar PV was installed after 2006.
Solar Rebates and Incentives By The State Government
Several states have exclusive benefits that are only available to the state’s residents. Keep in mind that these benefits are entirely separate from Federal benefits.
Let’s look at some of the benefits offered by different states to help offset the cost of going solar.
Arizona has contributed immensely to the solar growth of the country. This has been made possible by some exclusive benefits and rebates offered by the state’s government to people contributing to the solar growth.
Let’s take a look at some of the top-rated solar tax credits and incentives.
- Residential Arizona Solar Tax Credit – This incentive reimburses you 25% of the total cost of your solar panel, up to $1000.
- Equipment and Property Tax Exemptions – This rebate frees you from any additional property tax that you might have to pay because of the addition in your property value after solar panels installation.
The state of California offers certain rebates and exemptions that put solar power within reach of the average public. The most prominent rebates are the ones provided by Rancho Mirage Energy Authority (RMEA). If you’re installing solar on a home in Rancho Mirage, RMEA will provide you with a $500 rebate to cover your permit fees.
Please Note: The rebate is provided after the utility company has granted permission to operate within the said premises.
Net Metering is another excellent benefit offered by the state of California. In the golden state, any solar panel owner can receive bill credits for their extra solar power at the retail rate from their utility.
- EnergySmart Colorado – This scheme is redeemable for people planning to install a solar panel in a house in Eagle Valley, Roaring Fork Valley, and Summit County. EnergySmart Colorado provides a rebate of anywhere from $400 to $3000 on solar installations.
- Holy Cross Energy – Holy Cross has a per Kilo-Watt rebate system for its customer to reduce the cost of installing solars. Homeowners installing an average 6KW system can save up to $4,500 on their installments by this scheme.
The nutmeg state is just on top of schemes regarding solar rebates as its contemporary states. Some of the significant renewable energy incentives offered by Connecticut are listed below.
- Solar Rebate Programs – This rebate is worth $0.46 per Watt of solar installed up to 10 KW. This rebate means that a homeowner who invests in a 5KW system would receive $2,315 as refund.
- Energy Conservation Loan Program – The state of Connecticut offers a deferred interest rate for your loan for the system. Eligible families can borrow up to $25,000 for 10 years at interest rates as low as 0 to 6%.
- Tax Exemptions For Renewable Energy Equipments – Thanks to some CT tax leverage for solar, you don’t need to pay any taxes on installing your solar panels. The Sales and Use Tax Exemption for Solar and Geothermal System frees you from any tax on purchasing your system. Moreover, the Property Tax Exemption for Renewable Energy Systems saves you from paying any additional taxes on the raised value of your home.
The hustling-bustling state of New York is making every possible effort to reduce its carbon footprint. From rebates on installation systems to a reduction in taxes, New York has everything covered.
- The Megawatt Block Incentive Structure – This is a direct incentive available under New York’s forward-looking NY-Sun Initiative. The incentive provides an upfront rebate for commercial and residential solar energy uses. The amount of subsidy depends on how much solar energy is being produced and can be as high as $1/W.
- New York Net Metering – This is a crucial policy that aims to make sure that you get the right price for pumping solar energy into the grid. Any excess credit accrued is credited in your ‘credit bank’ and can be used in future months.
- New York State Solar Tax Credit – This credit scheme can reduce your state tax payment by 25% of your total solar energy expense. You could avail this scheme even if you leased out your solar panel system. Moreover, you can enroll in the credit scheme next year if your tax liability isn’t large enough to claim the full benefit currently.
These were some of the leading and unique solar incentives some of the states offer. Other states also provide similar exclusive benefits to their residents to boost solar energy usage. You can check out the subsidy programs of other states from their respective state websites.
Some Other Solar Based Incentives
The previous section introduced you to the major Federal Tax Credit and other exclusive benefits different states offer. However, the U.S. government provides several other solar incentives to its citizens. A few of them have been listed below.
Solar Incentive for Businesses
These schemes usually entail accelerated and bonus depreciation. If you are a business owner looking to install solar, this can be the ideal scheme. It helps in reducing businesses’ tax burden by offering them accelerated depreciation through Modified Accelerated Tax Recovery System.
Qualified solar energy equipment is eligible for a cost recovery period of 5 years. Net system costs can be reduced by 30% through accelerated depreciation.
State, non-government organizations, or several utility companies offer subsidized solar loans with reduced interest rates. Keep in mind that these loans are usually available only for a limited period.
Efforts are being all around the world to reduce humankind’s carbon footprint. The United States has been a torchbearer in encouraging people to shift to a more renewable form of energy in the form of solar energy.
In the last decade, solar energy has witnessed an increase of 42% in its consumption in the United States. With promoting schemes and heavy subsidies, America is well on its way to greater sustainable development.
Get the quote for your own solar panel installation today.