Federal Tax Credits & Incentives for Solar Energy

The federal government encourages Americans to opt for clean & renewable energy sources to both tackle global climate change and to ensure energy sustainability. Through various tax credits, incentives and policies, the American households can switch to solar energy in an affordable & cost-effective manner. These programs make switching to solar even more rewarding monetarily. In the view of unparalleled interest shown by the American household in going solar, the federal government has renewed its Residential Renewable Energy Tax Credit program for the year 2017.


The tax credit program was established under the Energy Policy Act of 2005 to support households for the installation of solar energy systems and solar water heating systems. The program was later extended to geo-thermal heat pumps and subsistence wind energy systems under Energy Improvement and Extension Act of 2008. The introduction of the American Recovery and Reinvestment Act of 2009 further enhanced the renewable energy benefits by deleting the maximum credit amount limit for solar energy.

How the Federal Residential Renewable Energy Tax Credit program benefits homeowners?

The cost of installing PV panels and solar energy systems that homeowners pay is not only a solid investment for which they get returns every month in the shape of reduction in the monthly electricity bills but also carries attractive tax benefits. The U.S. taxpayer can claim 30pc credit for the expenses borne by him/her in installing solar energy equipment after the installation is successfully made. In addition to the cost of PV panels and solar equipment, taxpayers can also claim credit for other expenses that include on-site labor and wiring & plumbing expenditures connected to solar system. The limits to maximum credit allowance is dependent on the technology and varies from one technology to the other. After approval, in case the taxpayer has less amount in his/her tax liability compared to the entitled tax credit amount, the remainder of the entitlement will be carried forward to the next tax year. To apply for the tax credit program, it is not mandatory for the homeowner to have the home where solar panel installation is made registered as his/her principle residence. Under Energy Improvement and Extension Act of 2008, there is no maximum limit to tax credit amount for the solar systems installed after year 2008.

Things to keep in mind:

It is important for the homeowner to only buy equipment which is approved by the Solar Rating Certification Corporation (SRCC) or other authority which has endorsement from the respective government of the state. Also, the tax credit program is not effective for the solar water-heating systems for swimming pools or tubs. Moreover, At least half of the energy consumed for the purpose of water heating in the residence should be from solar power in order to qualify under tax credit program.

Further information & instructions on this tax credit program as issued by the Department of the Treasury Internal Revenue Service can be downloaded at the bottom.

State and Municipal Tax Credits & Incentive Programs

In addition to federal government incentives toward solar energy, the U.S. states also have various incentives & policies to promote renewable energy sources to build energy efficient households. Similar to other states, just the state of California has over 185 different incentives and policies to help Californian households to grow energy efficient and fight carbon footprints. To name a few, the USDA - Rural Energy for America Program (REAP) Grants, City of Palo Alto Utilities - Smart Energy Rebate Program, Alameda Municipal Power - Residential Energy Efficiency Rebate Program and Redding Electric - Residential and Commercial Energy Efficiency Rebate Program are all state-specific programs that are made available for Californians by their respective state. There are various ways through which homeowners can get benefited from state & local solar incentives all over the fifty states and the federal capital.

Following are few ways to lower your electricity expense and to get entitlement to state & local incentives:

Feed-in Tariffs & Grid-Tied PV Systems:

Popular in Western Europe and other parts of the world, the U.S. households can also get themselves into long term contracts with their electricity providers for a performance-based compensation. Under this contract, the excess of your solar electricity goes to the utility grid. Through Net Metering the households get credits for the electricity sent back to the utility grid and can end up getting a check from the municipality instead of sending them one.

Green Loan Programs:

Many states and local governments provide households with loans at zero or discounted interest rates for the installation of solar energy systems. In addition, you may also apply for home building & remodeling loan for the places where you are planning to install a solar system under Energy Improvement Mortgages (EIMs) and Property-Assessed Clean Energy (PACE). The local banks & various credit unions also offer attractive interest rates for the installation of solar panels.

State and Local Tax Credits:

The state and local governments also offer personal income tax amount reduction for the homeowners to encourage renewable energy generation. The households also get exemption from property tax by various local governments to assist homeowners in switching to solar electricity.

Local Utility Rate Discounts & Rebate Programs:

In efforts to encourage local households to install PV panel to produce solar energy, many local governments provide with temporary reduction in the utility bills and rebate on the installation of solar energy systems. The rebates are also applicable to the purchases of energy efficient home appliances.


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