Key takeaways

  • The federal solar tax credit gives you 30 percent of the cost of your solar system in credit when you file your taxes.
  • Many states offer local solar incentives you can combine with the federal tax credit.
  • You must own your solar system to qualify for most solar incentives. Consumers who lease solar panels will not qualify.

Federal solar investment tax credit (solar ITC)

The federal solar investment tax credit, now known as the Residential Clean Energy Credit, runs through 2034 and offers a tax credit valued at 30 percent of the total cost of a solar system.

The federal solar tax credit was created in 2005 to make it easier for property-owners to invest in solar power. It was originally set to expire in 2006, but was extended several times. In 2020, the tax credit amount lowered from 30 percent to 26 percent and remained there through 2021. In 2022, the Inflation Reduction Act extended the tax credit through 2034 and increased the amount back to 30 percent for 10 years, with slight decreases the remaining two years.

Once your solar installation is complete, you can apply for the federal solar tax credit through the IRS. You’ll receive 30 percent of the cost of your solar system as a credit when you file your annual tax return.

How much can I save with the Federal Solar Tax Credit?

The amount you receive through the federal solar tax credit depends on the total cost of your solar system. In 2022, the total installed cost of a solar system in the US was $31,558, according to data from the Lawrence Berkeley National Laboratory, a Department of Energy Office of Science laboratory.

The 30 percent credit for a total system cost of $31,558 equals approximately $9,467. There is no ceiling on the amount you can receive through the federal tax credit, so you can claim the full 30 percent no matter the size or total cost of your system.

What does the federal solar tax credit cover?

The federal solar tax credit, according to the Office of Energy Efficiency and Renewable Energy, covers:

  • Solar panel modules or photovoltaic cells
  • Labor costs, including onsite preparation, installation, permitting fees, inspection costs and developer fees
  • Wiring, inverters and mounting equipment
  • Energy storage devices, like solar batteries, with a capacity rating of 3 kilowatt-hours (kWh) or greater (applies only to systems installed after December 31, 2022).
  • Sales tax on qualifying expenses

Federal solar tax credit eligibility

Single-family homes, apartments, condominiums, mobile homes and multi-family dwellings qualify for the federal solar tax credit. You can also claim the tax credit if you own a rental property, although you’ll only be eligible if you live there for at least part of the year. The percentage you can claim depends on how much time you live in your rental property each year. For example, if you live in a property for half of the year and rent it the other half, you can claim  50 percent of the credit.

If you lease your system or sign a power purchase agreement (PPA), you will not qualify for the federal tax credit. You must own your system to qualify for the tax credit.

You are eligible for the federal solar tax credit if:

  • You installed or will install a functioning solar panel system between January 1, 2006 and December 31, 2034.
  • You installed solar panels on your primary or secondary residence, where you live for at least part of the year.
  • You own the system and are not renting it through a lease or PPA.
  • You invested in a community solar project and the energy it generates is credited against and does not exceed your home’s electricity usage.
  • The solar panel system is new or installed for the first time. You won’t qualify if you purchased a house with a solar system already installed.

How to claim solar tax credit

To receive the 30 percent tax credit, fill out and return IRS form 5695 (PDF) after your solar panels have been installed. The IRS provides instructions to help you fill out the form correctly. Once you’ve been approved by the IRS, you will receive your 30 percent savings in the form of a tax credit when you file your annual tax return. If the value of the credit is more than you owe in taxes, you can carry the remaining amount over to the following year until you’ve received the full amount.

Types of solar incentives

There are a few different types of solar incentives available at the federal, state and local levels. Depending on where you live, you may qualify for a number of incentives after investing in solar panels. Here are some of the most common types of incentives available nationwide.

Tax credits

A tax credit impacts how much you owe in federal taxes. You don’t receive a check in the mail or literal cash back when you apply for a tax credit, like the residential clean energy credit. Instead, you receive a percentage or set dollar amount in credit on your federal tax return, reducing the amount you owe in taxes. If your tax burden exceeds the credit, you may receive a refund on the income taxes you paid. 

Rebates

Solar rebates offer an amount of money (usually set in advance) if you purchase a solar system. Rebates are more common at the state, local or installer levels. You can usually qualify for a solar rebate even if you don’t owe anything in federal taxes.

Low-interest loans

Some states, utilities and solar installation companies offer low-interest loans designed for residents who want to purchase a solar system. These loans help you finance your solar panels, making the initial purchase easier. While you will have a monthly loan payment, these loans come with a lower interest rate.

Solar Renewable Energy Certificates

Solar Renewable Energy Certificates (SRECs) are credits you receive based on the amount of energy your solar panels generate. In some states, public utility companies are required to purchase a set amount of SRECs from consumers to meet renewable energy goals. Depending on where you live, you may be able to sell your SRECs to your utility company in exchange for cash.

Performance-based incentives

Some states offer performance-based incentives (PBIs), which provide solar owners with a set cash amount for every kilowatt-hour their solar system generates.

Property and sales tax exemptions

An installed and functioning solar panel system tends to increase the value of a home, often by as much as $15,000, according to the Office of Energy Efficiency and Renewable Energy. In some states, if you install a solar system, you will be exempt from paying increased property taxes if the amount you owe increased due to the value of the solar panels.

Your state may also offer a sales tax exemption if you purchase solar panels. With this incentive, you will not have to pay a sales and use tax for your solar system (this only applies if you purchase your system instead of leasing).

Net metering

Net metering is perhaps the most well-known solar incentive available in a number of states. If you own a grid-tied solar system (meaning a system that is connected to the power grid, i.e. not an off-grid system), you can enroll in net metering through your utility. 

Net metering lets you send extra energy generated by your solar panels to the power grid in exchange for credits on your electricity bills. Check with your utility to learn the details of net metering in your area.

Solar incentives in top 10 solar states

California

  • Net metering: Legislators in California voted to revise the state’s net metering terms. NEM 3.0 (the new version of net metering) reduces the amount you can receive for sending power to the grid. Homeowners with complete permission to operate applications submitted by April 15, 2023 secured NEM 2.0 rates, which are much more favorable for consumers.
  • Property tax exemption: If you install solar panels before the end of 2024, you will be exempt from paying increased property taxes.
  • Sales and use tax exemption: Solar panels and other solar equipment are exempt from sales and use tax in California.
  • Self-Generation Incentive Program: If you install a solar battery for your home or business, you can qualify for a rebate valued at 15–20 percent of the battery cost.
State Local Incentives
Texas
  • Austin Energy Residential Solar Rebate Program: If you live in Austin and complete Austin Energy’s solar education course, you may be eligible for a $2,500 rebate.
  • Garland Power & Light EnergySaver Solar Rebate Program: If your utility is Garland Power & Light and you install solar panels, you can receive bill credits for every kWh of extra solar your system produces.
  • Oncor Electric Residential Solar Program: Oncor customers with solar panels and battery storage installed may qualify for a variety of rebates and incentives.
  • Property tax exemption: If you install solar panels in Texas, you can apply for exemption from paying increased property taxes.
  • TXU Energy Home Solar Buyback: TXU Energy customers can receive bill credits for extra solar power their system generates.
Florida
  • Property tax exemption: Florida residents who install solar panels won’t have to pay more in property taxes as a result of the increase to their home value.
  • Sales tax exemption: Solar energy systems are exempt from sales tax in Florida. 
Arizona
  • Mohave Electric Cooperative Energy Efficiency Rebate: Residents who install solar panels may qualify for a variety of rebates from this utility company.
  • Property tax exemption: Arizona residents who install solar panels won’t have to pay taxes on the increased value of their home.
  • Residential Solar and Wind Energy Systems Tax Credit: Arizona offers a statewide tax credit worth 25 percent of the cost of your solar panels, capped at $1,000. 
  • Sales tax exemption: If you purchase solar panels in Arizona, you won’t have to pay sales tax.
North Carolina
  • Property tax exemption: North Carolina residents who own a solar system that is not used to generate income or in connection with a business are exempt from paying increased property taxes on their solar panels.
Nevada
  • Solar easement laws: Nevada’s solar easement laws prohibit restrictions on solar (and wind) energy systems. This means, for example, your homeowner’s association cannot ban solar panels in your neighborhood.
New York
  • NY-Sun Program: NY-Sun offers several financial incentives if you install solar panels. This initiative funds New York’s Megawatt Block Incentive (a rebate program offering money based on the size of your system) and the state’s community solar program
  • Residential Solar Tax Credit: New York’s state solar tax credit offers 25 percent of the cost of your solar panels in credit, with a cap of $5,000.
New Jersey
  • Property tax exemption: If your property value increases after installing solar panels, you won’t have to pay higher property taxes.
  • Sales tax exemption: You won’t have to pay sales tax on the purchase of a solar panel system. 
  • Successful Solar Incentive (SUSI) Program: SUSI replaced New Jersey’s SREC program in 2021 and offers a certificate (called SREC-IIs) valued at $85 for every 1,000 kWh of solar energy a system generates. Like SRECs, you can sell the SREC-IIs to utility companies. 
Virginia
  • Property tax exemption: If you own solar panels, you may qualify for a partial or total exemption on higher property taxes as a result of your property value increasing because of your solar system.
  • SREC program: Under the Virginia Clean Economy Act, the state is required to generate at least 1 percent of electricity from solar. If you own solar panels, you can earn one SREC for every megawatt-hour of energy your system produces and sell SRECs to your utility.
Utah
  • Residential solar tax credit: Utah offers a state solar tax credit valued at 25 percent of the system cost or $400. This tax credit expires at the end of 2023, so installations must be complete before the end of the year to qualify for this incentive. 

U.S. solar incentive FAQs

  • Yes, you can apply for and claim multiple solar tax credits and rebates. The residential clean energy credit, for example, can be combined with state tax credits, meaning you receive credit from both incentives when you file your taxes.
  • Every incentive has unique qualifications. Check the requirements for each program before applying. The Database of State Incentives for Renewables & Efficiency offers a comprehensive list of incentives by state, including the qualifications for each program. If you lease your solar system, you will not qualify for most solar incentives.
  • No, you only qualify for the federal solar tax credit (and most state tax credits) if you file a federal income tax return. If the 30 percent tax credit is worth more than you owe in taxes, you can carry over any unused credit the following year.