Solar Tax Credits, Rebates & Savings

Government agencies, utilities and others offer several key types of federal, state, and utility incentives that support energy efficiency, promote the use of renewable energy sources, help to reduce or “buy down” the upfront cost of a rooftop PV system and/or offer a short-term credit on a customer’s utility bill.

Federal & State Tax Credits:

The Solar Investment Tax Credit (ITC) is one of the most important federal policy mechanisms in the United States initiated with the sole purpose of supporting the growth of solar energy industry. The ITC assures business certainty to project developers and investors as well as lowers down the upfront cost of a residential / commercial rooftop PV system. The main upfront incentive for firms or individuals trying to go solar is to gain the benefit from federal tax credits.

How does the Solar ITC Work?

The solar investment tax credit (ITC) is a dollar-for-dollar reduction in the federal income taxes that can be claimed for solar systems on residential (under Section 25D) and commercial (under Section 48) properties for 30% of the cost of a solar photovoltaic (PV) system that is installed before December 31, 2016. Starting in 2017, the commercial credit (under section 48) will drop to 10% and the residential credit (under Section 25D) will drop to zero unless it is renewed by Congress.

Why is the Solar ITC Important?

ax policies that promote energy conservation and renewable energy play an indispensable role in creating new high-wage American jobs. They drive economic growth, guarantee U.S. global competitiveness, lower energy bills for consumers & businesses and reduce pollution. The solar ITC reduces the tax burden for individuals or businesses that purchase solar energy technologies. In addition, it inspires the private sector to invest in solar manufacturing and solar project construction. The ITC has made a significant contribution in increasing use and lowering costs of solar energy. For the last eight years, solar prices have persistently fallen whilst installation rates and efficiencies have shown continuous improvement. Time has proven that a stable, long-term incentive like solar ITC can reduce prices and create jobs in solar energy.

Since the ITC was implemented in 2006, the solar energy industry has seen annual solar installation grow by over 1,600% and solar employment by 86% in the last four years. Solar ITC is creating jobs at a rate nearly 20 times higher than employment growth in the overall economy.

Homeowner’s Eligibility to Claim Investment Tax Credit 

You will be eligible for the 30% ITC, if you meet all of the following criteria:

  • The solar panel system was ‘placed in service’ between January 1, 2006, and December 31, 2016. Starting in 2017, the tax credit will drop to zero unless it is renewed by Congress.
  • The term ‘Placed in service’ usually means that construction of the system was completed, your utility supported connecting the system to the grid, pre-operating tests established the equipment works, and you procured ownership of the system.
  •  The system generates electricity for a home located in the United States, although the home need not necessarily be your primary residence.
  • There is no maximum amount that can be claimed if the solar PV system was installed in or after 2009.
  • You own the solar PV system. It means you have purchased the system with cash or through financing. But you are leasing the system or in an arrangement to purchase electricity generated by a system you do not own.
  • The solar PV system is new or being used for the first time. The ITC can only be claimed on the “original installation” of the solar equipment.

Commercial Eligibility to Claim Investment Tax Credit

You will be eligible for the 30% business ITC, if you meet all of the following criteria:

  • The solar panel system was ‘placed in service’ between January 1, 2006, and December 31, 2016. Starting in 2017, the tax credit will drop to 10% unless it is renewed by Congress.
  • The term Placed in service usually means that construction and installation are complete, the taxpayer procures legal title and control of the system, all required licenses and permits for using the system are secured, and pre-operational tests show that the equipment works.
  • The system is used by someone who is subject to U.S. income taxes. (not tax-exempt entities like charities)
  • The system should generate electricity for a property located in the United States (but not U.S. territories unless owned by a U.S. corporation or citizen).
  • The solar PV system is new or being used for the first time. The ITC can only be claimed on the “original installation” of the solar equipment.
  • The system should not be used to generate energy for heating a swimming pool.

Eligible Expenses: Eligible solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat.

Sales and Property Tax Exemptions

Property Tax Exemptions

Property tax exemptions are economically viable tax incentives, exemptions, exclusions or credits. They assure a taxpayer (businesses and homeowners) that the added value of a solar system is excluded from the valuation of the residential or commercial property for taxation purposes. Considering property taxes are collected locally, some states authorize local taxing authorities the opportunity of allowing a property tax incentive for solar. There are 38 states that offer property tax exemptions for renewable energy. For example, the State of Indiana offers a tax deduction equivalent to the lesser of either 50% of the installation of solar powered roof vents or fans or $1000. One of the renewable energy property tax exemptions in Nevada State permits businesses to apply for a property tax abatement of up to 55% for up to 20 years for real and personal property used to produce solar energy. Generation facilities must have a capacity of at least 10 megawatts. Facilities that use solar energy to generate at least 25,840,000 British thermal units of process heat per hour are also entitled to the abatement.

Sales Tax Exemptions

Sales tax exemptions provide immunity from the state sales tax for the purchase of a solar energy system and technologies (e.g., passive systems, solar space heat, pool heating, etc.). There are 29 states that offer sales tax exemptions for renewable energy. For example, Arizona grants a sales tax exemption for the installation of solar energy devices by contractors and for the retail sale of solar energy devices. Colorado residents are exempt from the state's sales and use tax all sales, storage, and use of components used in the production of alternating current electricity from solar thermal systems.

Rebates & Incentives

Performance-Based Incentives

Performance-based incentives (PBIs) are incentives that add to the financial value of the solar panel system over time as it generates energy, rather than reducing the upfront cost. It is an effective way to motivate users to properly install, maintain and pay attention to the performance of their systems; since the payment is based on the energy produced. Feed-in tariffs (FIT) are a common type of PBI. Usually, these are paid based on the actual energy ($/kWh) produced by the solar panel system. The incentive rate remains constant for the term of the contract.


Rebates are effective direct incentives provided for solar installations by some governments based on the size of a customer’s system and administrative abilities of a given state. Rebate amounts help to reduce the upfront cost of going solar making it less expensive than power from the utility company.