10 States With the Best Tax Incentives for Solar Energy
Transitioning to solar power can help homeowners save loads of money, especially in the long run. Over time, monthly savings on utility bills really add up, making solar panels a financially savvy investment. In the short term, though, the initial price can be pretty steep.
Thankfully, there are a number of tax incentives available to help you offset the starting cost of solar panels — and to provide additional monetary benefits down the road. The most notable of these incentives is the federal solar tax credit, which defrays 26% of the total startup installation cost. What's more, many states offer their own benefits to homeowners who wish to invest in solar power, and many of those benefits are quite significant.
So, what are the top states for solar tax incentives? Let's dive in.
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.
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 purchase a new system 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:
- Iowa Solar Energy System Tax Credit: Iowa residents can recoup 15% of the cost of a solar system, capped at $5,000. This credit is claimed when filing state income taxes.
- 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:
- Residential Solar Investment Rebate Program: This rebate is managed by the Connecticut Green Bank and pays $0.463 per watt of solar installed. Most homeowners are eligible for more than $2,000 savings through this rebate program.
- 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.
- Net metering: Connecticut residents also have the option of net metering, meaning any excess solar power generated by their system can be fed back into the solar grid in exchange for utility credits.
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 cost of their solar system. 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 Energy Generation Incentive 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 half the cost of their residential solar system.
- 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.
Federal Tax Incentives for Solar Energy
No matter which state you live in, all American homeowners can claim a federal tax incentive for installing solar panels. This credit can be claimed on your federal income tax return and is worth 26% of the total cost of your solar purchase. The incentive is meant to make solar installations more affordable and more accessible to a wider range of homeowners.
The Solar Investment Tax Credit (ITC) was first developed through the Energy Policy Act of 2005. Initially, it was set to last for just two years, but it has been extended for residential solar installations through at least 2023. (Note that the specific terms of the credit have changed over the years and may continue to shift.)
To be eligible for the federal credit, homeowners must meet the following criteria:
- You have installed a residential solar system at any point from 2006 through the end of 2022.
- You have placed the solar system in a residential location. It does not have to be your primary residence.
- You own the solar system (as opposed to leasing it), meaning you paid for it in cash or are financing it.
Is Home Solar Right 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.