Does my Home Qualify for Solar Credits? A Comprehensive Guide to Federal and State Solar Credits

Solar panels have theoretically been available since the energy crisis of the 1970s but have gotten a lot more attention in recent years as they’ve become more affordable for homeowners. Going solar isn’t just good for the environment — homeowners can also snag some nice financial breaks. On top of a federal tax credit, your state or town may also have incentives of their own. But this stuff is ever evolving. New laws get passed at the federal and state level all the time and new tax credits emerge and expire faster than the earth revolves around the sun. Case in point: California just overhauled a key part of its solar incentives, causing a good bit of confusion and chaos on the West Coast. We’re here to break down the details so you can figure out how to get started with solar tax credits.

How does the solar federal tax credit work?

Just as the federal government offers a tax break for buying an electric vehicle, it also rewards homeowners who purchase new solar-powered systems. Through 2032, the solar federal tax credit is worth 30% of installed system costs. (That amount will gradually begin decreasing in 2033.) To qualify, your solar equipment must:

  • Be located at a U.S. residence that you own.

  • Be new or being used for the first time.

  • Be installed between January 1, 2017 and December 31, 2034

You must purchase the system, either outright or through financing. Alternatively, you could purchase an interest in an off-site community solar project (if the electricity generated is credited against, and does not exceed, your home’s electricity consumption). In our opinion, this is a VERY good deal. 2034 may seem like a long way away but we’ve heard from clients that even getting solar installed can take a while. A short supply of contractors and supply chain issues can lead to months or even years of waiting. So if solar is on your mind, don’t delay.

What even is solar?

Solar panel systems harness the power of sunlight to create electricity. Installing this kind of renewable energy on your rooftop can meet your home’s energy needs while reducing your utility bill.

Solar batteries, which are a little different, store excess energy that the system produces. At night or on cloudy days, your home can draw on that stored energy. Homes that don’t have a solar battery are usually connected to their local electrical grid, and they may be compensated for funneling excess energy back to the grid. (We’ll unpack this more in a minute.)

How did the California laws change?

For years, California has touted some of the most generous solar incentives. Part of the deal is that solar owners are paid for sending excess energy to their town’s public utility power grid — a practice known as net metering. The Golden State’s new law, which took effect on April 15, is expected to reduce the average compensation by 75%. The new, lower payment rate is now determined by the cost the utility provider would pay to purchase clean power elsewhere.

The long and short of it is that California homeowners who install solar rooftops will now receive way smaller incentive payments. Supporters of the new law argue that the old way of doing things favored the wealthy because utilities have had to charge lower-income folks more to make up for the money they’re losing through solar households. But many clean energy activists and solar installers are calling B.S. and saying the new law is more of a cash grab for those huge utilities. Either way, California’s solar incentives just took a major hit. Our take: this law could get reversed or changed anytime so don’t let this discourage you from installing solar. The federal credit is still very appealing.

Should I even consider installing solar? 

If you’re able to do it, investing in clean energy is a win for the environment — and there are some financial incentives, even if California is scaling back. The new law there is meant to encourage more homeowners to install batteries, which can store clean power during the day and distribute it after it gets dark. That might help prevent blackouts and minimize the state’s reliance on gas plants.

In the meantime, the solar federal tax credit is still in play, so that’s something. Homeowners will have to cover the upfront cost of materials and installation. The average cost is anywhere from $15,000 to $25,000, according to the Center for Sustainable Energy. But lower monthly utility bills can lead to long-term savings. Your home value will likely increase as well.

Other states with good solar tax benefits

The following states, which all offer net metering, also stand out for their robust solar incentives:

A federal tax break is always a good thing. If you’re eligible for extra state or local incentives, all the better. We’re here if you have any questions about how to maximize whatever solar tax perks are available to you. 

AJ Grossan