Solar incentives in the USA: what’s out there and how to claim it

It’s possible to install solar panels on your property and receive money back in every state in the U.S. Solar power is so in demand that solar incentives are now offered by local, state, and federal governments as well as utility companies themselves.

The most important solar incentive is the federal clean energy tax credit, which provides up to 30% of the cost to install solar panels back to the taxpayer in the year after installation. All taxpayers in the U.S. are eligible for the tax credit when they pay to install solar panels on a home they own, but the amount of the tax credit you can claim is limited by the amount of tax you owe in any given year.

Other incentives are handled by states and utility companies. The three broad categories of solar incentives are tax breaks, rebates, and performance-based incentives. Incentives for battery storage are also available.

It can be hard to find solar incentives if you don’t know what you’re looking for. We created this guide to help you understand the kinds of solar incentives that exist and how to find them near you.

Introduction to solar incentives

As the need for climate action has become ever more urgent, lawmakers across the country have stepped up to support solar power: the best form of energy generation there is (we had to say it). This support has come in many forms but is usually the result of legislative action.

Many state legislatures have passed laws called renewable portfolio standards (RPS) that require utility companies in the state to get a certain amount of the energy they sell from renewable sources. These laws often include funding for incentive programs to help home and business owners adopt solar. State public utilities commissions are often charged with designing these programs to meet the requirements outlined in the RPS law.

Solar incentives come in one of three major types:

• Tax breaks - Income tax credits are the most popular kinds of tax breaks, but state and local governments also commonly offer sales and property tax exemptions.

• Rebates - Usually offered directly to solar installers by utility companies using a pool of ratepayer funds specifically set aside to encourage solar development, rebates generally reduce the up-front cost of going solar.

• Performance payments - Performance payment programs offer a way for solar panel owners to make additional income based on the amount of energy their solar systems generate.

Here’s a bit more on each of the three main types of solar incentives:

Solar tax credits

People and businesses who purchase solar panels have long enjoyed tax credits that help ease the financial burden of going solar. Both the federal and state governments offer solar tax credits.

All federal and state income tax credits can be claimed when filing taxes in the year after installation. We’ve developed a helpful guide to claiming the federal solar tax credit using form 5695. State tax credits are usually fairly simple, and your tax software or preparer should be able to guide you through claiming them.

The federal solar tax credit

The current federal solar tax credit offers 30% of the costs of installing solar back to taxpayers in the year after the installation is completed. The federal tax credit is based on the purchaser’s income, and the credit can’t exceed the total tax owed in one year, but unclaimed credit can be carried forward to future years.

Say your solar installation costs $18,000 total. You are eligible for a federal tax credit of $5,400. Remember, the solar tax credit is non-refundable, so you can only claim the full $5,400 if you owe at least that much in taxes. If you owe less than that, you can claim the remaining tax credit value the following year.

This is where it gets complicated because the amount of tax you owe depends on your income, deductions, and other credits you qualify for.

Here’s a quick example: A married couple filing jointly with an income of $76,367, who take the standard deduction of $27,700 and qualify for no additional credits or deductions, will owe $5,400 in tax in 2023. Again, that tax changes based on whether the couple has dependents or qualifies for any other deductions and tax credits.

State tax credits

Many states also offer solar income tax credits, sometimes adding up to over half the cost of the system when combined with the federal credit.

Here’s a breakdown of the states that offer solar tax breaks, with links to each state’s incentive page on our site:

State	Tax credit details
Arizona	25% of costs, up to $1,000
Hawaii	35% of costs, up to $5,000
Idaho	Deduction of 40% of costs in year 1 up to $5,000, 20% in years 2-4
Massachusetts	15% of costs, up to $1,000
New York	25% of costs, up to $5,000
South Carolina	25% of costs, max of 50% of tax liability in any given year, roll over unused credit for up to 10 years

Tax exemptions

States and municipalities also offer sales and property tax exemptions for solar power. Sales tax exemptions reduce the upfront cost of going solar, and property tax exemptions prevent solar owners from paying more based on the value a solar installation adds to a property.

Tax exemptions differ from tax credits in that your eligibility is pretty much automatic if your state offers these incentives.

Your installer will take care of any necessary paperwork for sales tax exemptions, and property tax exemptions just mean the county assessor won’t be knocking on your door after you get solar installed.

States with tax exemptions

State	Sales tax exemption	Property tax exemption
Alabama		x
Arizona	x	x
California		x
Colorado	x	x
Connecticut	x	x
District of Columbia		x
Florida	x	x
Hawaii		Honolulu only
Indiana	x	x
Iowa	x	x
Kansas		x
Louisiana		x
Maryland	x	x
Massachusetts	x	x
Michigan		x
Minnesota	x	x
Missouri		x
Montana		x
New Hampshire		x
New Jersey	x	x
New Mexico		x
New York	x	x
North Carolina		x
North Dakota		x
Ohio	x	Certain cities only
Rhode Island	x	x
South Dakota		x
Tennessee	x
Texas		x
Vermont	x	x
Virginia		x
Washington	x
Wisconsin	x	x

Solar rebates

Rebates are a great way to save money on solar panels. Solar rebates are often tied to a specific utility and paid directly to the solar installer to reduce the customer’s up-front cost of going solar.

This reduction in cost affects the amount of solar tax credits you can receive. For example, if you get a $1,000 rebate off the cost of a $20,000 solar installation, your tax credit is based on the reduced $19,000 amount. At 30%, the tax credit would be $5,700.

Solar panel rebate amounts are usually quite small these days—often under $500 or $1,000. There are exceptions, however, including Illinois, Oregon, Mississippi, and New York, which still offer many utility customers rebates worth several thousand dollars.

Learn more: How to find and claim solar rebates

Current rebate programs

Here are the states with current solar rebate programs:

State	Rebate details
Arizona	Some utilities
California	Battery rebates only
Colorado	Some utilities
Delaware	Most utilities
Georgia	Some utilities
Illinois	Most utilities
Maryland	Statewide
Massachusetts	Some utilities
Minnesota	Some utilities
Missouri	Some utilities
Nebraska	Lincoln only
New Hampshire	Statewide
New York	ConEd and Upstate only
Oregon	Most utilities
Pennsylvania	Philadelphia only
Rhode Island	Statewide
South Carolina	Some utilities
Texas	Some utilities
Wisconsin	Some utilities

Performance-based incentives

The final way states and utilities have chosen to incentivize solar adoption is performance-based incentives, also known as “performance payments.” As the name suggests, these incentives are paid to solar system owners based on how much energy their systems generate.

Some performance-based incentives are paid directly to system owners as a separate line item on their monthly bills. Others rely on a concept called Solar Renewable Energy Credits (SRECs), which represent 1,000 kilowatt-hours of electric generation, and are awarded to solar system owners at specific intervals (usually quarterly or annually).

SRECs

SRECs have value because they are proof that energy was generated from renewable sources. Utility companies can buy SRECs to comply with state RPS laws. If the utility fails to show compliance, they must pay a fine, so SRECs generally have a value that is less than what the non-compliance fine would be.

In most states with SRECs, individual customers first sell their SRECs for a market price to an aggregator, which then bundles them and sells them to utilities. In other places, the customer’s state or utility company pays them directly.

In the Illinois Shines program, the payment for SRECs is made ahead of time based on the expected performance of the system over 10 years. It’s more like a rebate, which is why we listed Illinois in the rebates section above.

How to claim SRECs

As you can probably tell, SRECs can get very complicated. In a state with an SREC market, you (or your installer) will have to register your system with a certain authority in order to have your energy production tracked and your SRECs issued.

Rest assured, if there is money to be made from selling SRECs in your state, your solar installer will explain how it works and get you set up to profit.

States with performance-based incentives

States with current SREC or performance-payment programs include Connecticut, Colorado, Delaware, Maryland, Massachusetts, Minnesota, New Jersey, Ohio, Pennsylvania, and Washington DC.

Solar battery incentives

In the past five years, solar batteries have become much more affordable, and homeowners are taking notice. On top of that, batteries now qualify for the federal clean energy tax credit, even when they’re not installed with solar panels.

Utilities are taking notice, too, because modern batteries come with enough internet-connected smarts that they can be remotely activated to provide power to the grid, meaning the energy they store can be quite valuable when electricity demand is high.

That value has led to more and more utilities offering battery storage incentives. Most battery incentive programs require home battery owners to allow the utility to activate their battery during specific peak grid usage periods during the year. In exchange for this access, the utility pays up-front or ongoing monetary credits on the customer’s bill.

Honestly, we could write a blog entirely about solar battery incentives. Oh wait, we did. Here is a whole article about solar battery incentives.

Final word on solar incentives

More than ever before, the U.S. is doing its part to fight climate change. A lot of that work is being done by offering solar incentives to individuals and businesses to help them adopt carbon-free sources of energy generation.

If you are one of those individuals or business owners, you owe it to yourself to use the information we’ve presented here and take advantage of the solar incentives available to you. But don't be fooled by advertisements for free solar panels! These are often sneaky marketing tactics, very few people qualify for low-income free solar installations.

Other steps in the process of going solar include figuring out how many solar panels you need and getting quotes from solar installation companies in your area. Have a good solar journey!