Going solar is more affordable today than ever, but it still requires a significant up-front investment. The average six-kilowatt solar energy system costs between $16,260 and $21,420. Fortunately, there are lots of tax incentives to help you pay for the installation.
At the federal level, you’ll qualify for the Renewable Energy Tax Credit (RETC). Sometimes called the investment tax credit (or ITC), the RETC allows you a 30 percent credit on your installation costs, provided that your taxable income is greater than the 30 percent credit you’re claiming.
For most homeowners, this effectively translates to a 30 percent discount on your solar energy system. So, if your system costs $20,000, you’d be able to claim around $6,000 as a credit on your taxes using the RETC.
In addition to the federal tax credit, there are also a variety of state-level incentives offered by 14 states and Puerto Rico. For instance, in New York, you’d qualify for a 25 percent personal tax credit, which functions like the federal RETC. In California – which offers more policies 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 $20,000 off your state property taxes.
One of the other major types of state-level incentives you might encounter is the Solar Renewable Energy Certificate, sometimes called the Solar Renewable Energy Credit (SREC). The process for obtaining SRECs varies by state, but you’ll generally have 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.
Other financial incentives might be available at the local level. Los Angeles’ Solar Incentive Program, for instance, offers homeowners rebates on their energy bills at a rate of 25 cents per watt of energy generated. In other words, you receive a discount on your energy bill equivalent to the amount of solar energy you’ve produced. And when your solar energy system produces more energy than you use, the excess energy will be siphoned back into the grid for use elsewhere. 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 get your system installed, 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 those 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 RETC 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 RETC: if you want to cash in on it, you’d better act fast. While it’s currently set at 30 percent, the RETC will decline to 26 percent in 2020, then to 22 percent in 2022. And after 2022, the RETC won’t be available for homeowners at all.
If you’re ready to make the jump to clean, abundant solar energy, contact a certified installer today, and remember to ask them to help you identify all the financial incentives available in your area.