Up until a few decades ago, it was nearly impossible for the average Joe to generate their own electricity. But that is no longer the case, thanks to solar energy. These days, at least one property within any neighborhood can be seen using solar as an alternative to a traditional source of electricity, and why not? It’s cheap, clean (since you’re utilizing energy directly from the sun), and does not leave you completely dependent on the traditional power grid.
But that’s not all; people are increasingly choosing solar panels for one main reason: installing them on their property makes them eligible for a government incentive. In this article, we will discuss in detail the incentives you are eligible to receive after installing solar panels.
What Are Solar Panel Incentives?
You’re forced to spend a lot of money when you install a solar energy setup since installation costs can be overwhelming. To help offset those costs, the federal, state, and local governments, along with some utility companies and other organizations, offer financial incentives to eligible homeowners.
These incentives depend on where you live and what program you qualify for. Some incentives will directly lower your installation charges, others will reduce your tax, and some will help you save money on your future electricity bills.
Is the Federal Solar Tax Credit Still Available?
When you hear people talking about incentives for installing solar panels, the conversation often revolves around the Federal Investment Tax Credit (ITC). After all, it allows eligible homeowners to claim a tax credit equal to 30% of the cost of installing a solar energy system. But this tax credit is no longer available for solar systems that were placed in service after December 31, 2025.
Fortunately, this wasn’t the only incentive available for individuals. You can still qualify for a range of incentives offered by states and other organizations. At the same time, it is important to keep checking the IRS website because tax rules often change; you may not be eligible today but may be eligible later.
Below, we discuss in detail the incentives you receive from state governments, local bodies, and utility companies.
State Tax Credits
Similar to the federal tax credit, your state tax credit also lowers the amount of state income tax you owe. It does not directly reduce your taxable income; rather, it lowers the amount of tax owed to the state. For example, if you owe $4,000 and your state offers a $1,000 solar tax credit, instead of paying the full amount, your payable amount will be reduced to $3,000.
However, this incentive is not offered in every state, and those that do offer it have different rules. For example, Massachusetts offers 15%, up to $1,000, and South Carolina offers 25% of the installation cost, but again, it comes with its own limits.
What happens if your tax credit is larger than the amount of tax you owe? This depends on whether the credit is refundable or non-refundable. For example, suppose you owe $3,000 in federal taxes but qualify for a $4,500 tax credit. The credit first reduces your tax bill to $0. But what happens to the remaining $1,500? The answer depends on the type of tax credit you receive.
In case of a non-refundable credit, you won’t get a direct refund from the state; instead, the state will let you use this amount for tax in the future. There is also a fixed time period during which to use this amount, which in some states is 5 years and in others 10 years. For refundable credits, the state will send you the remaining amount.
Exemption From Property Tax
When you add value to your home, your property taxes usually increase because they are based on your home’s assessed value. When you go solar, your home’s value often increases because buyers see it as an upgrade. But unlike other home improvements, your property taxes may not increase thanks to the property tax exemption available in many states for solar panel installations.
For example, if your home is worth $400,000 and installing solar panels increases its value to $420,000, you would continue paying property taxes based on your home’s original assessed value rather than the increased value after installing solar panels.
Since solar panels can last 25 to 30 years (and often continue producing electricity beyond that), this exemption can help homeowners save money on property taxes for many years.
Some states also provide sales tax exemptions for solar equipment, installation, or both. You will feel this benefit immediately because it reduces the upfront cost of going solar.
Utility Rebates
These are the cash amounts that a utility company (your electricity provider) will pay you after you have installed an eligible solar system. This doesn’t work like a tax credit; you get your system installed, and the company will provide you with cash or reduce your overall system cost.
Different companies have varying rules on the amount of rebates homeowners are eligible for. Some companies offer a fixed amount, while others offer a larger amount to homeowners with large setups.
Since these rebates are funded by small charges collected from customers by utility companies or state rebate programs, their amounts are limited, they often run out soon, and they are given on a first-come, first-served basis.
Net Metering or Net Billing
Normally, electricity companies supply electricity to homeowners, who then pay a monthly bill for the amount they use. But oftentimes, after installing solar panels, your system starts generating more electricity than you need. In such cases, the excess electricity is not wasted. Instead, it is often sent back to the electricity grid, and you receive credits on your monthly electricity bill. This process is called net metering.
However, utility companies do not always credit you for exported electricity at the same rate they charge you for grid electricity. For example, if you pay 16 cents per kWh for grid electricity, the utility company may credit you for the electricity generated by your solar panels at only 8 cents per kWh. This is called net billing. Whether you receive net metering or net billing depends on the rules and policies in your state and your utility company’s program.
Solar Renewable Energy Credits (SRECs)
Some states require utility companies to produce electricity from renewable energy sources, such as solar and wind. Most of the time, it becomes difficult for them to generate electricity themselves, so they buy it from homeowners, often through Solar Renewable Energy Certificates (SRECs).
This is a certificate you earn when your solar panel generates a certain amount of energy. This can become an additional source of income because you can sell it to utility companies. However, the amount you receive from the companies is not fixed. The certificate value depends on market conditions (like stocks and other things), so the amount homeowners can earn varies.
