2022 Solar Incentives and Rebates (Top 10 Ranked States)
In this EcoWatch guide on solar incentives, you’ll learn:
- How to take advantage of tax credits for going solar
- Top 10 states with the best incentives for solar
- What solar property and sales tax exemptions you need to know
- What solar renewable energy certificates (SRECs) are
- The local rebates and tax credits available to you
This guide has helped many homeowners learn and understand the incentives of going solar and how it can benefit you the most in the long run. Let’s get started!
In this article, we’ll discuss the solar incentives and rebates available to homeowners in many areas of the U.S. When you’re ready to speak with a qualified professional, follow the links below or estimate the savings and incentives you qualify for with our EcoWatch home solar calculator.
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Solar Incentives and Rebates
Federal Solar Tax Credit
The federal solar tax credit, or investment tax credit (ITC)l, has been a keystone incentive for the solar industry. It was introduced in 2006 under the Bush administration’s Energy Policy Act and has been continually renewed by Congress since.
Aimed to offset the initial cost of going solar, this federal incentive allows taxpayers to claim 30% of the total installation cost of a home solar project on their federal income taxes. With the average rooftop solar photovoltaic (PV) system starting at around $20,000, qualifying homeowners will see a credit of around $6,000 when tax season comes around.
The credit will reduce to 26% in 2033 and 22% in 2034. It will be phased out entirely in 2035 unless it is renewed by Congress.
The below video further explains how the Inflation Reduction Act will affect solar incentives.
State Tax Credits
Some states offer tax credits similar to the one from the federal government. Combined with the ITC, this incentive can add up to significant savings for homeowners who go solar. There are only about ten states that currently offer some form of a state solar tax credit.
Since solar panels only generate electricity when the sun is shining, homeowners need a mechanism to spread out their energy consumption and stay powered when the sun is down.
Net metering is a billing arrangement through which surplus energy generated by solar panels is fed back to the local electric grid in exchange for credits from your electricity company. These credits can be used against your monthly electric bill.
Net metering programs are designed to incentivize customers to install solar panels, thereby reducing the total amount of energy that public utilities have to generate and distribute (a process responsible for about 25% of greenhouse gas emissions in the U.S.).¹
Net metering laws vary across the nation, and no two states’ policies look exactly the same. The rate at which a utility pays for your excess energy will be the largest factor in a net metering policy.
Some credit customers at the retail rate, while others offer lower-value credits. Solar tends to be more popular in states with favorable net metering laws, as the incentive shortens a solar installation’s payback period and yields a higher return on investment.
Property Tax Exemptions
Most states and local municipalities offer property tax exemptions for renewable energy systems. This means that even though solar increases the value of your home, you won’t have to pay the additional property taxes that would otherwise accompany a home upgrade.
The exact form of these exemptions will vary depending on the state. For example, a popular California solar incentive called the “Active Solar Energy System Property Tax Exclusion” ensures that adding solar panels doesn’t raise homeowner property taxes. Currently, 36 states offer some form of property tax exemptions for solar or other renewable energy systems.²
Sales Tax Exemptions
Depending on the state, your solar power system may also be exempt from sales tax. Most states have sales taxes hovering around 4 to 7%, which means homeowners could save over $1,000 on an average-sized solar system.
Currently, 25 states offer sales tax exemptions for the purchase of solar equipment.³
Some states, local governments and even utility and solar companies offer solar rebates to homeowners or low-income service providers who install solar equipment. Sometimes solar rebates are given directly to the resident and other times they’re given to the solar contractor who can then charge less for installations.
Many utilities will offer additional rebates for solar energy storage systems or other energy efficiency upgrades. For example, California utility PG&E offers rebates of 15-20% of the solar battery cost for all customers, and rebates up to 100% for customers who live in areas prone to power outages.
Be sure to ask your solar installer what types of solar programs and rebates may be available near you.
Solar Renewable Energy Certificates (SRECs)
As of 2021, 31 states and the District of Columbia have renewable portfolio standards (RPS) or clean energy standards (CES) that requires a specified percentage of the electricity utilities sell comes from renewable resources, while 7 more states have non-binding renewable portfolio goals.⁴ This incentivizes governments to reward residents who help the state reach its goal.
Currently Oregon has one of the most ambitious RPS goals: To hit 100% renewable energy by 2040.5
If you live in one of these 31 states, your solar panels may earn solar renewable energy certificates (SRECs) for each megawatt-hour (or 1,000 kWh) of clean energy generated. To meet the requirements of a state’s RPS, public utilities will purchase these certificates from you in cash. The certificates then allow public utilities to count the clean energy you generate toward their own goals.
Though complex to understand, SRECs offer tremendous upside in the form of additional income to both residential and community solar customers. Eligibility will vary depending on your location, but any reputable solar company will be able to walk you through the process of earning and selling your renewable energy certificates.
Performance Based Incentives (PBIs)
Similar to net metering, a performance-based incentive, or PBI, will reward you for the electricity your PV system produces. A PBI will pay you a per kilowatt-hour credit for the power your solar panels produce.
PBIs may be offered by the state, local government or utility company.
Some states, local utilities and organizations may offer subsidized loans to help you finance your solar panel system. When you get a free quote from a solar company, you can ask them about solar loan programs.
Top 10 States for Solar Energy Tax Incentives
As you consider whether to invest in solar energy, make sure you’re aware of any tax incentives specific to your state. If you decide to work with a local top solar company, it will likely provide you with assistance in claiming these financial benefits.
Certain states will offer their own additional incentive programs for adopting solar. In around 10 states, that comes in the form of a second tax credit similar in form to the ITC. These state tax credits cover a predetermined amount of the net cost of a solar energy system, usually between 10 and 40%, capped at levels ranging from $1,000 to $5,000.
According to our research and analysis, the 10 states with the best solar energy tax incentives include:
- New York
- Rhode Island
- New Mexico
- New Hampshire
- New Jersey
New York Solar Incentives
Residents of New York have a number of ways to offset their solar panel installation costs, above and beyond what’s offered by the federal tax incentive:
- NY-Sun Megawatt Block incentive: Under this program, solar consumers can claim a dollars-per-watt ($/W) cash rebate for their systems. Both residential and commercial systems can qualify for this program.
- Solar Energy System Equipment Credit: This solar incentive allows residents to deduct up to $5,000 or 25% of total solar energy expenses from their taxes (whichever is lower). The credit is available to homeowners who have new systems installed or who choose to lease a system.
- Sales tax exemption: Buyers do not pay the state’s 4% sales tax on solar equipment.
- Net metering: New York residents may also take advantage of the current statewide net metering program, which allows any excess solar power generated by a system to be fed back into the solar grid in exchange for credits on utility bills.
Rhode Island Solar Incentives
For residents of Rhode Island, there are several ways to save money on solar installation:
- CommerceRI’s Renewable Energy Fund grant program: Under this program, homeowners can get a rebate of $0.85 per watt, capped at $7,000, when they have a new system installed. For the average system, this amounts to savings of somewhere between $4,000 and $5,000.
- Property tax exemption: This exemption makes sure that, even if solar panels raise the value of your property, they will not raise your property taxes.
- Sales tax exemption: When Rhode Island residents purchase a new solar system, they are exempt from paying the state’s 7% sales tax on the equipment.
- Net metering: Rhode Island residents may feed their excess solar power back into the solar grid in exchange for utility credits. The state has a Renewable Energy Growth program that ensures those enrolled receive 29.65 cents per kilowatt-hour fed back to the grid for 15 years.
Iowa Solar Incentives
Iowa offers a number of solar tax incentives, in addition to the federal tax credit:
- Property tax exemption: This exemption assures Iowa homeowners that property taxes will not rise if solar panels raise the value of their property.
- Sales tax exemption: Iowans do not have to pay the 6% state sales tax when they purchase equipment for their new solar system.
- Net metering: Iowa residents may also take advantage of net metering credits.
Connecticut Solar Incentives
Several financial incentives are available in Connecticut, including each of the following:
- Renewable Energy Solutions: Through this program, customers can sell power generated or renewable energy certificates (RECs) back to utility companies Eversource and United Illuminating.
- Energy Conservation Loan Program: Connecticut residents who wish to purchase a solar system can get low-interest loans from the state government. Specifically, residents can borrow up to $25,000 for 10 years with interest rates as low as 0% and no higher than 6%.
- Sales tax exemption: Connecticut residents do not have to pay the 6.35% state sales tax on new solar equipment.
- Property tax exemption: This exemption assures Connecticut homeowners that property taxes will not be raised after solar panel installation.
Maryland Solar Incentives
In addition to the federal tax incentives, Maryland residents can take advantage of these financial incentives:
- Residential Clean Energy Rebate Program: Maryland residents get a rebate of $1,000 when they install a new solar panel system or solar shingles at their primary residence.
- Solar Renewable Energy Certificates (SRECs): Maryland homeowners may receive one certificate for each megawatt-hour of clean electricity they produce via their residential solar system. These credits can then be sold on the SREC market.
- Property tax exemption: Installing solar systems can increase the value of a home, but Maryland residents do not have to pay any additional property taxes.
- Sales tax exemption: Maryland residents do not have to pay the state’s 6% sales tax on new solar equipment.
- Net metering: Maryland homeowners have access to net metering, meaning any excess solar power generated by their system can be fed back into the solar grid in exchange for utility credits.
New Mexico Solar Incentives
In New Mexico, residents can take advantage of the federal tax incentive as well as the following:
- Solar Market Development Tax Credit: New Mexico taxpayers get a 10% tax credit (up to $6,000) toward total solar energy expenses.
- Sustainable Building Tax Credit: New Mexico will credit up to $6.50 per square foot on your income taxes when you install solar panels. Note that, to qualify, the home must be certified by the U.S. Green Building Council.
- Property tax exemption: New Mexico homeowners don’t pay property taxes on their increased home value after installing solar panels.
- Net metering: Homeowners can take advantage of the state’s net metering program to sell excess energy back to the grid.
Colorado Solar Incentives
In Colorado, some of the most prominent solar tax incentives include:
- Local rebates: Although Colorado does not have a statewide solar rebate program, the majority of major utility companies and local organizations offer incentives.
- Community Solar Gardens: Colorado is a leader in community solar adoption, which means many non-homeowner residents can subscribe to get their energy from an off-site solar array.
- Sales tax exemption: The state does not tax the physical equipment of solar panels or solar systems.
- Property tax exemption: Colorado residents do not have to pay any additional property taxes for increased home value due to solar installation.
- Net metering: Colorado homeowners can take advantage of net metering through their utility companies.
Massachusetts Solar Incentives
There are several incentives available to homeowners in Massachusetts:
- Residential Energy Credit: Massachusetts residents can get a credit worth up to 15% of the total solar system cost. The maximum is a $1,000 credit.
- Solar Massachusetts Renewable Target (SMART) Program: The Massachusetts Department of Energy Resources created this incentive program, which provides credits to customers of investor-owned utility companies.
- Property tax exemption: Massachusetts residents do pay additional property taxes after installing solar panels.
- Sales tax exemption: Massachusetts does not tax the physical equipment of solar panels or solar systems.
- Net metering: Customers of regulated electric companies are eligible for net metering in Massachusetts.
New Hampshire Solar Incentives
Tax incentives available in New Hampshire include:
- Renewable Electrical Generation Rebate Program: Those with a solar system size of 10 kilowatts (kW) or less can claim credits worth either $0.20 per watt (up to $1,000) or 30% the cost of their residential solar system (currently closed, re-opening in October 2022)
- Property tax exemption: New Hampshire residents in select counties are exempt from paying increased property taxes from the value add of their residential solar system.
- Net metering: New Hampshire has a statewide net metering program through which residents can get money back from utilities.
New Jersey Solar Incentives
The following incentives are available to residents of New Jersey:
- Transition Renewable Energy Certificates (TRECs): Residential solar systems can help homeowners earn these certificates, which can be sold back to utility companies.
- Property tax exemption: Those who live in New Jersey are exempt from any property tax increases related to their residential solar equipment.
- Sales tax exemption: Residents do not have to pay the state’s 6.625% sales tax on solar panels and related installation equipment.
- Net metering: New Jersey homeowners can take advantage of net metering, meaning any excess solar power generated by their system can be fed back into the solar grid in exchange for credits
Are There Enough Home Solar Incentives for You?
We’ve noted some of the top states for solar tax incentives, but it’s worth noting that there are plenty of other states that offer net metering, rebates and other financial incentives. Additionally, we recommend checking for financial incentives from your city/municipality or your local utility company.
While solar installation can cost a lot of money on the front end, these incentives can make it worthwhile — especially if you live somewhere with ample sun exposure, where you can really take advantage of your system’s energy-producing abilities. To see how much it would cost to install a solar panel on your home — and how much you can save with incentives — use our home solar savings calculator.
Additional Solar Resources:
- DSIRE – Database of State Incentives for Renewables & Efficiency
- IRS – Energy Incentives for Individuals Q&A
FAQs: U.S. Solar Incentives
At EcoWatch, we routinely get questions from readers about solar programs from the federal government and state legislatures. Here are some of the more common queries, along with our answers.
Climate policy and energy independence have taken center stage in recent years, and many hope this will result in expanded incentives for adopting solar. However, most current incentives were set long before the cost of solar reached the low levels where it currently stands. Seeing as costs are low and demand for renewable energy is high, we wouldn’t recommend waiting to install a photovoltaic system in hopes of seeing better solar incentives.
The solar investment tax credit, or federal ITC, is a tax credit worth 30% of installed solar electric costs. A number of states offer their own incentives for solar panels as well, coming in the forms of additional tax credits, rebates, grants or low-interest loans. Local utilities may also offer their own special incentives for solar depending on your area.
The federal tax credit is worth 30% of the total cost of your installation and can be applied to your federal income tax liability. If you plan to claim the ITC but you don’t owe any taxes during the calendar year, the tax credit does roll over, but only for up to five years.
So, if you don’t anticipate paying a few thousand dollars in income tax over the next five years, you won’t be able to take full advantage of the ITC.
Purchasing solar in cash will always provide the biggest return on your investment. However, financing solar through a loan is the best way to make the switch if you can’t afford the full cost upfront.
Solar loans have become a popular and practical option for homeowners going solar. Though interest rates may tack on a few thousand to your total costs, financing solar via a solar loan provides far more long-term savings than a solar lease or power purchase agreement (PPA).