Understanding Tax Credits and Rebates for Solar Energy

The incentive to install a solar energy system into your home has been spurred on by both local and federal governments. The federal government has the Federal Solar Tax Credit as a nationwide incentive for homeowners to switch to solar energy. Trying to understand how these incentives work can be difficult, especially with the specific wording that is used. We’ll explain the differences between tax credits and rebates, and how they apply to solar energy incentives.

Understanding Tax Credits and Rebates

Let’s go over what are tax credits and tax rebates:

  • Tax rebates are a refund of taxpayer money after a retroactive tax decrease. These rebates can come in the form of reimbursement claims on your taxable income during your tax filing.
  • Tax credits are the amount of money that a taxpayer can cut from the taxes they owe. These credits can be nonrefundable, refundable, or partially refundable. Tax credits can cut your owed taxes down to zero, although they can’t provide a tax refund. These credits can vary in their amount and purpose.

It is also worth noting that credits and rebates can not only come from federal and local governments. Rebates can also be provided by utility companies. They benefit from your solar energy system feeding excess power into the grid to help lighten the load. You also benefit from this arrangement through net-metering.

Why are Tax Credits and Rebates offered for solar energy?

The reason why tax credits and rebates are provided for solar energy is because of the Energy Policy Act of 2005. The act was introduced originally because of rising energy prices and the U.S.’s dependence on fossil fuel imports. The act included tax incentives that would total roughly $14.5 billion, with roughly $4.5 billion in incentives for renewable energy. The federal solar tax credit originates from this act and was originally meant to last until 2007. Although the rising interest in solar energy throughout the years has kept the program going and is currently set to expire starting 2024 unless another renewal comes from Congress.

Do state and local governments provide tax credits and rebates?

State and governments also provide their tax credits and rebates for solar energy. As in most states in the U.S., taxes are paid separately for federal and state governments. Some municipalities may have their tax imposed on their taxpayers. The purpose of these taxes will differ, although they are generally contributed to the state infrastructure, bills, and programs. Although the different levels of taxes can also provide their credits and rebates for your solar energy installation. These incentives can differ between states and local municipalities and require research to make the most of these incentives. We help our customers utilize their federal, state, and local incentives whenever possible. If you are curious about incentives available in your area, the Database of State Incentives for Renewables & Efficiency (DSIRE) website is a great resource to look through.

Examples of tax credits provided for solar energy

Federal Solar Tax Credit – Federal Government

The Federal Solar Tax Credit is the most well-known tax credit provided for solar energy. This tax credit can be claimed on your federal income taxes for a percentage of your solar photovoltaic (PV) system’s cost. The program provides a 26% tax credit for systems installed between 2020 – 2022, and 22% for systems installed in 2023. The expenses included are the solar panels or PV cells, labor costs, energy storage devices charged by the system, and sales taxes. There is no maximum amount that can be claimed.

    Residential Solar and Wind Energy Systems Tax Credit – Arizona State

    Arizona’s Solar Energy Credit is available to individual taxpayers who install a solar or wind energy device at their Arizona residence. The credit provides 25% of the cost of their solar or wind energy system, with a $1,000 maximum allowable limit regardless of the number of devices installed.

      Examples of rebates provided for solar energy

      CPS Energy – Solar PV Rebate Program – San Antonio, Texas

      CPS Energy is San Antonio’s municipally owned energy utility company. CPS Energy is offering rebates for solar PV system installations on residential or commercial buildings. To be eligible for the rebate, the solar energy project must be priced at $4.00 per watt or less. There are also specific requirements regarding the grid connection and the setup of the solar energy system. The rebates have a maximum of $25,000 per residential account per year and $80,000 per commercial account per year.

        Ashland Electric Utility – Photovoltaic Rebate Program – Ashland, Oregon

        The City of Ashland Conservation Division is offering rebates on residential and commercial electric customers installing solar PV systems. The rebate provided is $0.25 per watt up to a maximum of $5,000 per system. To qualify, the system must be interconnected with the city’s electrical grid, net-metered, and comply with all permits. The owner must also be a tenant and the installation must have total solar resource fractions of 75%.

          Helping you make the most of your solar energy incentives

          We help our customers make the most of their federal, state, and local incentives for solar energy systems. Our website also has a free online estimate tool that generates a personalized report for you from a simplified questionnaire. That report will contain the potential savings you can net, and the cost of a solar energy system installed on your property. You can also contact us directly via phone at +1 (602) 363-8919 or via email at Scott@elitesolarenergy.org for more information regarding solar energy for your property.