June 17, 2022

What Solar Tax Credits Are Available in 2021?


Going solar is more affordable today than ever, but it still requires a significant upfront investment. The average six-kilowatt solar energy system costs between $16,000 and $22,000. Fortunately, there are lots of solar federal incentives and rebates to help you pay for the installation.


The federal investment tax credit (2021)

At the federal level, you’ll qualify for the federal solar Investment Tax Credit (ITC). In 2021, the ITC will provide a 26% tax credit on your solar panel installation costs, provided that your taxable income is greater than the credit itself.

For most homeowners, this effectively translates to a 26% discount on your home solar system. So, if your system costs $20,000, the ITC would enable you to claim around $5,200 as a credit on your taxes.


State-level solar incentives

In addition to the federal ITC, there are also a variety of state-level incentives offered by multiple states and Puerto Rico. For instance, in New York, you can qualify for a 25% solar tax credit, which functions much like the ITC. In California – which offers more rebates and incentives for renewable energy than any other state – you might qualify for multiple state-administered incentives. For example, the state’s property tax incentive allows you to deduct the entire value of your system from your property taxes. That means that if you’ve installed an average-sized system that costs $20,000, you could take the full amount off your state property taxes.

One of the other major types of state-level incentives you might encounter is the Solar Renewable Energy Certificate (SREC), also known as Solar Renewable Energy Credit. The process for obtaining SRECs varies by state, but you’ll typically need to register your solar system with the appropriate SREC-granting authority, which will then track your renewable energy production and periodically issue you SRECs based on how much energy your system produces. The more energy your system produces, the more SRECs you’ll get. You can then sell your SRECs to your local energy utility, which uses them to fulfill its obligations under state-mandated renewable energy targets.


Local solar incentives

Other financial incentives might be available at the local level. Some programs offer homeowners rebates on their energy bills at a set $/watt of energy generated rate. And when your solar energy system produces more energy than you use, the excess energy will be exported back into the grid. At the end of the month, if you’ve produced more energy than you’ve used, you’ll see a rebate on your energy bill for the surplus. In other words, your solar energy system might not just help you reduce your energy expenditures – it might allow you to actually earn money. This practice, known as net metering, is also offered by many other states. (Of course, something to keep in mind here is net metering is always changing; it may not be around forever, and those incentives have already been reduced in some areas.)


Yes, it’s complicated.

Because solar financial incentives aren’t all administered by the same agency, trying to figure out which ones you qualify for can be confusing. When you install your solar panel system, ask your installer for guidance regarding the financial incentives available to you. You can also check for state financial incentives using the renewables incentives database at DSIREUSA.org, a project developed by the North Carolina Clean Energy Technology Center. You might also want to talk to your accountant or another financial professional about deductions you might qualify for.


Some important side notes

It’s important to remember that financial incentives like the ones outlined above are often only available for homeowners who buy their solar energy systems outright or obtain a loan to do so. If you’re leasing your system from a third party, you won’t qualify for the ITC or many other financial incentives. Instead, the party that leases you the system – the system’s actual owners – will reap those financial benefits.

One final note on the ITC: if you want to cash in on it, you’d better act fast. While it’s currently set at 26% in 2021 and 2022, the it will decline to 22%at the start of 2021. And after 2023, the ITC will no longer be available for homeowners.


Find an installer

If you’re ready to make the jump to solar, contact a certified installer today, and remember to ask them to help you identify all the financial incentives available in your area.

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