Government Incentives for Solar in 2023

July 29, 2023

Nothing butters my biscuits more than saving money.

Provided by Giphy

The dopamine rush that comes with finding a promo code and using it online is comparable to sky diving... well maybe that’s a bit excessive, but you get what I mean.

With solar being such a big expense, every bit you can save is worth it.

This article will provide you a quick guide on how to save on solar with government incentives (federal and state), and hopefully provide some good laughs along the way.

But first, a disclaimer: This is not tax advice! Consult a tax expert.

Now that that is out of the way, let’s move on.

Federal Incentives for Solar

Good news! In August 2022, Congress passed an extension of the Solar Investment Tax Credit (ITC) that provides a federal income tax credit for the solar you purchase!

Previously, this tax credit was only 26% and was to end in 2022.

Now, however, it is 30% and extends to the year 2032!

Provided by Giphy

There was also some retroactive stuff that was applied as well, but we won’t get into that in this article.

What is a Tax Credit?

Let’s be clear on this. A tax credit is NOT a rebate or a deduction. The government doesn’t simply help pay part of your bill upfront when you purchase solar or reduce your taxable income.

A tax credit is a credit that reduces your federal income tax liability by the dollar amount of the credit at the end of the year.

Your federal income “tax liability” is the total amount of taxes you owe on your income to the federal government for income earned during a specific period of time. This number is before withholdings or credits.

So if you install a solar system with a total cost of $20,000, you will generate a credit of $6,000. And because this credit can be rolled, if your tax liability in that year is less than $6,000, the credit will be rolled over to the next tax year.

Note though, that this is a non-refundable credit, meaning that it will not generate a refund in and of itself if your withholdings already covered your tax liability, but it can force other credits to be pushed into effect since non-refundable credits are taken into consideration before refundable credits.

Because this stuff causes most people’s heads to spin, please consult with a tax expert as what we write is not tax advice.

Who Qualifies?

Here is a piece from MarketWatch which describes this well:

  • Date of installation: You installed your solar system between Jan. 1, 2006, and Dec. 31, 2034.
  • Original installation: The solar PV system is new. The credit can be claimed only on the original installation of solar equipment and not the repurposing or reuse of an existing system.
  • Location: The solar system is located at your primary residence or secondary home in the United States. It may also be used for an off-site community project if the electricity generated is credited against your home’s electricity consumption and does not exceed it.
  • Ownership: You own the solar PV system. You cannot claim the credit if you are leasing or in an agreement to purchase electricity generated by the system, including a solar power purchase agreement (PPA).

What Expense Are Included?

Here are the costs that will be covered/counted as part of the federal tax credit:

  • The panels (of course), invertors, racking/mounting, and other
  • Battery storage systems
  • Site inspection, permitting fees, and developer fees
  • On-site installation costs and labor
  • Any sales tax you paid on top (depends on the state)

In other words, it’s pretty much the whole shabang!

Provided by Giphy

How Do I Get The Credit?

I’m going to quote MarketWatch again here, just because they spell it out so well:

You claim the solar tax incentive as part of your annual federal tax return with the Internal Revenue Service (IRS). Your solar provider should supply the proper documentation and instructions upon your demand. We have listed the essential steps in claiming the credit here:

  1. First, download IRS Form 5695 as part of your tax return.
  2. Then, on Part I of the tax form, calculate the credit. You file your solar system as “qualified solar electric property costs.” Then, on line 1, enter your project’s total costs as written in your solar contract.
  3. Complete the calculations on lines 6a and 6b.
  4. On line 14, calculate any tax liability limitations using the IRS’s Residential Energy Efficient Property Credit Limit Worksheet.
  5. Finally, complete the calculations on lines 15 and 16. Be sure to enter the exact figure from line 15 on your Schedule 3 (Form 1040), line 5.

Again, this is not tax advice! Consult a tax expert.

State Incentives for Solar

Understand that every state is different as it relates to incentives for solar.

Some provide a fairly large state tax credit (like New York), while other states have close to nothing.

Luckily, the federal tax incentive is pretty juicy in and of itself. But if you can save more, why not go for it?!

So first, let’s explain the different types of incentives that your state might have.

Types of Incentives

Rebates - Pretty similar to what you see in everyday life. You will get a partial refund of the cost of your solar system after you purchase it and submit for the rebate with the entity running the rebate program.

Tax Credit - Similar to the federal solar tax credit, this will reduce the tax liability you owe to the state on your personal income.

Renewable Energy Certificates - These are credits you can generate over time from the power your solar panels produce. You can then sell these credits to local utilities who need meet certain renewable energy standards. The price per credit you get can fluctuate, but can equate to some big money at times.

Performance Based Incentives - This is a flat payout for every kWh your panels produce. It is based on your net metering with your power company.

What Does My State Provide?

This article would be longer than Chile if I was to list off the incentives state by state.

So this is the part where I turn you over to Google to do some research. Just type in “solar incentives in [your state]”, read at least a few articles, and also consult with the company that sold you your panels.

How to Save Even More on Solar

Even better than a 30% federal tax credit is the prices you can get when you install solar yourself!

As mentioned in our other articles, traditional solar companies are chock full of middlemen. They add unnecessary costs to you, and it makes us here at DIY Solar simply disgusted.

DIY Solar helps you get solar for about half of what you’d be paying with a traditional solar company!

That’s because we don’t have a door-to-door salesforce and we don’t have any install teams.

You sell to yourself (by finding and reading this article) and you install yourself.

AND all of these government incentives still apply!

“But isn’t installing solar difficult?”, you might ask.

Nope, it isn’t as bad as you think. The majority of Americans could install our solar kits as long as you know how to use a drill and understand basic electrical safety.

And if you aren't feeling up to the task, we now offer a full install option in select states.

If interested, start by getting a free solar quote from us, read some more of our blog posts, and contact us with questions!

Fill out the form!

We will text you soon.

FREE Lion Prowler Power Bank

$49 Value
Lion Energy Prowler Power Bank
When you pay your deposit within 5 days of receiving your quote.  (Learn more)

FREE Lion Summit Power Generator

$499 Value
When you pay in full within 30 days of making your deposit.  (Learn more)
Still have questions?
Spending 60 seconds to fill out the quoting form will answer many of your questions. But feel free to contact us in any case!