How Do Solar Incentives Work?

The promise of solar energy has caught on in the US with three million plus installations in the US. Despite what you might think, most of those are solar panel systems going on residential properties.

Homeowners embrace solar for different reasons. Some see it as a good way to reduce the need for nonrenewable power sources. Others see it as a way to do their part for Mother Nature.

Part of the attraction for some homeowners is the solar incentives offered by the federal government or state governments. Not sure how solar incentives work? Keep reading for a quick breakdown of the kinds of incentives and how they work.

Federal Solar Incentives

The main federal incentive is the federal solar tax credit. You don’t see this one immediately. Instead, this credit lets you reduce your overall tax bill by a percentage of what you paid for your solar system.

For systems installed up to the end of 2022, it’s 26 percent. For systems installed in 2023, it drops to 22%.

So, let’s say you pay $15,000 for solar panels in 2022. On top of saving on your monthly utility bill, you also get to reduce your taxes owed by up to $3900.

The caveat is that you can’t use the tax credit to boost your return.

State Incentives

Some states offer no incentives, while other states may offer several. They vary in type. A common incentive is a reduction in your state taxes, very similar to the federal program.

Other programs include giving you a break on your property taxes for the increased value of your home. Some programs reduce installation costs based on the wattage. You may even see straight-up rebate programs, where you send in proof of your installation and the state cuts you a check.

Local governments and even utility companies may also offer cash rebates on installations.

Other Solar Energy Incentives

One of the other big incentives available in many states is a net metering program. In essence, these programs let you sell excess electricity your system produces to your utility companies. The catch is that you don’t get any cash for these programs.

Instead, you get a credit from your utility provider against your electricity usage. That typically means a reduction in your utility bills or may eliminate it altogether.

A less common alternative is the solar feed-in tariff. Under this program, you can sell that excess electricity and potentially get actual cash for the sale, rather than just a credit.

Solar Incentives and You

Most people don’t get a solar installation just to take advantage of the solar incentives. They do it for environmental reasons, utility cost reduction, or both.

However, those solar incentives do exist. It only makes sense to take advantage of them while you can. The best part is that it usually just means filling out some extra spaces on a tax return or filling out a form to make it happen.

Looking for more home improvement ideas? Check out the posts over in our Home Improvement section.