If you’re considering switching to solar energy or have already installed solar panels, you’re probably aware that solar isn’t just good for the planet—it’s good for your wallet too. One of the most appealing financial incentives for going solar is the availability of tax credits. These credits can significantly reduce the overall cost of your system and improve your return on investment. At SunMade Energy, we help homeowners navigate the different tax credits and rebates available to them. In this blog post, we’ll explain the key tax credits you may qualify for if you own a solar panel system, how they work, and how to claim them.
Federal Solar Investment Tax Credit (ITC)
The most widely known and impactful incentive for solar energy is the Federal Solar Investment Tax Credit, commonly referred to as the ITC. This credit allows homeowners to deduct a percentage of their solar installation costs from their federal taxes. It applies to a wide range of expenses, including equipment, labor, and energy storage systems, and is available to anyone with a federal tax liability. With the ITC set at 30% through 2032, it remains one of the most valuable incentives for going solar.
Key Details:
- 30% Credit Through 2032: As of now, the ITC allows you to deduct 30% of the total cost of your solar energy system if installed before the end of 2032.
- No Cap on Value: There is no maximum amount that can be claimed, so the more you invest, the more you save.
- Applies to Total Costs: This includes equipment, labor, permitting, and even energy storage systems (like batteries) installed with the solar panel system.
- Tax Liability Required: You must owe federal taxes to benefit; this is a credit, not a refund.
State-Level Solar Tax Incentives
In addition to the federal ITC, many states offer their own tax incentives to make solar even more affordable. These incentives vary by state but can include income tax credits, property tax exemptions, and sales tax waivers. When combined with the federal ITC, these state-level programs can dramatically reduce the upfront and long-term cost of a solar system.
Common State Incentives:
- State Tax Credits: Some states offer additional tax credits similar to the ITC.
- Sales Tax Exemptions: Certain states exempt solar equipment from sales tax, reducing upfront costs.
- Property Tax Exemptions: Solar installations may increase your property value, but in many states, that added value is exempt from additional property taxes.
- Performance-Based Incentives (PBIs): These reward you for the energy your system produces over time, often through payments or credits.
Local Utility and Municipal Rebates
Your utility provider or local government may offer additional incentives that make solar more accessible and affordable. These programs often come in the form of cash rebates, net metering credits, or special financing options. Since these offers are sometimes limited in scope and availability, it’s important to check with your utility or city officials early in the process.
Types of Local Incentives:
- Cash Rebates: Direct payments or discounts for installing solar.
- Net Metering Credits: Earn credits for excess electricity you send back to the grid.
- Low-Interest Loans or Grants: Some municipalities offer financing programs to help cover the cost of installation.
Battery Storage Incentives
As battery storage technology becomes more prevalent, incentive programs are expanding to include credits and rebates for energy storage systems, especially when paired with solar panels. These incentives not only help with initial costs but also support energy resilience and grid independence.
Battery Incentive Highlights:
- Federal ITC Applies: Batteries charged with solar power are eligible for the same 30% tax credit.
- California’s SGIP: California offers the Self-Generation Incentive Program (SGIP), which provides substantial rebates for home battery installations.
- Backup Power Credits: Some regions offer additional credits for systems designed to provide backup during outages.
How to Claim Your Solar Tax Credits
Claiming your tax credits may seem overwhelming, but with the right documentation and guidance, the process is straightforward. The most important step is to keep accurate records of your purchase and installation, and to file the correct tax forms. For state and local incentives, separate applications may be required, and deadlines can vary.
Steps to Claim Your Credits:
- Keep All Documentation: Save receipts, contracts, and manufacturer information related to your system.
- File IRS Form 5695: Use this form to claim the federal ITC on your tax return.
- Consult a Tax Professional: A CPA or tax advisor can ensure you’re claiming the correct amounts and qualifying for all possible credits.
- Apply for State/Local Incentives Separately: These usually require additional applications outside of your federal tax return.
Contact Us For More Details About Solar Tax Credits
Tax credits are one of the most powerful tools for reducing the cost of going solar. Between the federal ITC, state-level incentives, and local utility programs, homeowners have access to thousands of dollars in potential savings. At SunMade Energy, we’re here to help you take full advantage of every credit and rebate available. Interested in learning what you qualify for? Contact SunMade Energy today for a personalized consultation and quote.
