Is There a Government Incentive for Solar Panels?

Is There a Government Incentive for Solar Panels?

The cost of installing solar panels intimidates many homeowners who are thinking about making the switch. While adding solar panels can seem like an expensive decision, there are a variety of government subsidies that offset the cost of going solar. The most common form of subsidy for switching to solar energy is a tax credit. Are these enough to sufficiently lower the cost of solar for most homeowners?

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Is There a Government Incentive for Solar?

There are significant government-backed incentives for switching to solar power. The federal government offers a solar tax credit, and many state governments offer tax breaks. Learning what the solar tax credit is, how the solar tax credit works, and becoming familiar with additional state-based solar incentives are essential steps towards understanding the real cost of installing solar panels.

What Is the Solar Tax Credit?

The Solar Tax Credit, also known as the Solar Investment Tax Credit (ITC), is a federal initiative to support the growth of solar industry in the United States. The ITC is a government subsidy by way of a tax credit. Since the ITC was introduced in 2006, the solar industry in the United States has grown by 10,000%.

The ITC is a substantial incentive. In 2019, the ITC is a 30% credit. In 2020, the ITC reduces to 26%  and in 2021 it reduces further to 22%. The ITC credit rate is determined by and applied to the tax year in which the construction of a solar project begins. For example, if you were to start a solar project in 2019 that costs $10,000, the ITC will allow you to deduct $3,000 on 2019 taxes. If you plan to utilize the ITC, maintaining a clear record of expenses and receipts for all costs associated with your ITC qualifying solar construction is critical.

When a person is unable to realize the full benefit of the ITC, perhaps because their tax debt amounts to less than their ITC, he or she is eligible to roll the remaining credit over into the next tax year. For example, if one’s tax burden for 2019 is $2,000, but they received a $3,000 ITC, $2,000 of their ITC would apply to their 2019 taxes, and they would be eligible to apply the remaining $1,000 towards their 2020 taxes.

While the application of the ITC is relatively straightforward, if you have any doubt about its application in your case, you should consult with an experienced tax professional.

How Does the Federal Tax Credit Work for Solar Panels?

The ITC works for installing solar panels the same way it works for other solar construction projects.

Taking advantage of the ITC requires adherence to 4 simple steps:

  1. Ensure that your project qualifies for the ITC (work with a tax professional if you are unsure).
  2. Begin installing solar panels.
  3. Keep clear records of all expenses related to the installation of your solar panels.
  4. Fill out an IRS Form 5695 and add your renewable energy credit information to your typical tax filing form (usually a 1040). 

Additional Solar Incentives and Tax Breaks by State

Other than the ITC, there are many state-based solar incentives and tax breaks. While not all states offer an incentive that applies to individuals installing solar panels on their homes, many states do. Given that the incentives for solar construction varies from state to state, looking at what incentives are available in your state is the best way to determine what incentives are available to you.

If you want to learn whether your state offers any solar incentives you qualify for, click here for a list of solar incentives and rebates organized by state.

The huge value of solar energy is becoming increasingly clear, thanks to its long-term energy savings and environmental benefits. The foremost factor dissuading most people from installing solar panels is the cost. However, given government incentives, the cost of installing solar panels is a lot less than most consumers think. If you are interested in installing solar panels, your ITC savings coupled with state-based incentives can make it an affordable option.

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