Solar Tax Credits and Incentives Explained

The Federal Solar Investment Tax Credit (ITC) - ended for residential installations

The federal Residential Clean Energy Credit (Section 25D of the Internal Revenue Code, commonly called the solar ITC) provided a federal tax credit equal to thirty percent of the total cost of a residential solar installation, including equipment, labor, and eligible battery storage. It no longer applies to new installations. The 2022 Inflation Reduction Act had extended it at 30% through 2032 with a step-down to 26% (2033) and 22% (2034), but the "One Big Beautiful Bill" (H.R. 1, signed July 4, 2025) repealed the residential credit early: it is unavailable for any installation completed after December 31, 2025, per IRS guidance on the law.

How the ITC Worked (for installations completed by 12/31/2025)

For an installation completed on or before December 31, 2025, the ITC was a dollar-for-dollar reduction in the homeowner's federal income tax bill, not a deduction from income. On a $20,000 solar installation, the 30% credit equaled $6,000 off federal taxes. Key points that still matter for anyone claiming a credit from a qualifying pre-2026 installation:

• You must have tax liability - The credit can only reduce taxes you actually owe. If your tax liability is $3,000 but your credit is $6,000, you claim $3,000 in the installation year and carry forward $3,000 to the following year. You cannot receive a refund for excess credit
• Carryforward applies - Unused credits can be carried forward for one additional tax year only
• Battery storage qualified - Battery systems installed with solar (or standalone battery systems after 2023) qualified for the credit if completed by the 2025 deadline. The battery had to be charged exclusively by solar to qualify
• Renters typically could not claim it - Only the owner of the solar installation could claim it. If you leased a solar system, the installer (not the homeowner) claimed the credit
• Second homes qualified - Vacation homes and second residences in the US qualified, not just primary residences

The 6 Types of Solar Incentives

Beyond the federal ITC, solar incentives fall into six categories. Most states layer multiple types, allowing savvy homeowners to "stack" incentives for maximum savings.

1. State Tax Credits

State income tax credits work like the federal ITC but apply to your state tax return. The most generous:

• New York - 25% state tax credit, up to $5,000. Combined with the federal credit, New York residents can offset 55%+ of installation cost
• Massachusetts - 15% state credit, up to $1,000. Modest cap limits benefit for larger systems
• South Carolina - 25% state credit with no cap, spread over 10 years (2.5%/year)
• Maryland - Residential Clean Energy Grant up to $1,000 (grant, not credit)
• Hawaii - 35% state credit, up to $5,000. The highest percentage of any state

2. Utility Rebates

Some utilities offer upfront cash rebates for solar installation, typically $0.10–$0.50 per watt or a flat amount. Examples:

• Austin Energy (TX) - $2,500 flat rebate on qualifying installations
• Salt River Project (AZ) - $500 flat rebate for residential solar
• Pacific Gas & Electric (CA) - Limited Self-Generation Incentive Program (SGIP) for battery storage
• Green Mountain Power (VT) - Battery storage incentives up to $10,500

Utility rebates are less common than they were in the early 2010s but still exist in many territories. Check your specific utility's website for current programs.

3. Property Tax Exemptions

Solar panels add value to a home, typically $15,000–$20,000 for a 6kW system, according to Zillow research. Without a property tax exemption, this value increase could mean higher property taxes annually.

36 states exempt solar installations from property tax assessment, meaning the added home value from solar doesn't increase your property tax bill. States with this exemption include California, Florida, New York, Texas, Colorado, Arizona, and most northeastern states.

4. Sales Tax Exemptions

26 states exempt solar equipment and installation from state sales tax, typically 5–10% savings on hardware costs. On a $12,000 equipment purchase in a state with 8% sales tax, this exemption saves $960.

States with sales tax exemptions include Massachusetts, New York, Arizona, Colorado, Minnesota, North Carolina, and others. Some states exempt equipment only (not labor); others exempt both.

5. Performance Incentives and SRECs

Several states pay solar owners for the electricity they generate, above and beyond what they save on their electricity bill. Solar Renewable Energy Certificates (SRECs) are tradeable certificates representing 1 MWh of solar production.

Active SREC markets in 2026: District of Columbia ($400–$500/SREC), New Jersey ($90–$152/SREC via SREC-II), Massachusetts (SMART program at $0.05–$0.30/kWh fixed for 10 years), Illinois (15-year fixed-price contracts via Shines), and Maryland (~$60/SREC).

6. Net Metering Programs

Net metering allows you to earn credits for excess solar power exported to the grid. Full retail net metering (available in 41 states) credits you at the full electricity rate, effectively using the grid as a free battery. Partial net metering credits exports at lower avoided-cost rates.

While not a traditional "incentive," net metering is often the largest ongoing financial benefit of solar, worth $500–$1,500/year in full-retail NM states.

States With the Most Incentive Programs

How to Stack Incentives

With the federal residential credit ended, state-level incentives now do the heavy lifting. A well-structured solar installation in a strong-incentive state might look like:

In this scenario, a $22,000 system costs just $9,440 after stacking federal + state incentives, nearly cutting the price in half. With full retail net metering and New York's above-average electricity rates, this system typically achieves a 5–7 year payback period.

Finding Your State's Incentives

The official source for all US solar incentives is DSIRE USA (Database of State Incentives for Renewables & Efficiency) at dsireusa.org, maintained by NC State University with DOE funding. All incentive data on PlainSolarData is sourced from DSIRE.

When evaluating incentives, always verify:

• Program availability (some have funding caps and close when funds are exhausted)
• Expiration dates (many state credits have sunset provisions)
• Eligibility requirements (income limits, system size caps, contractor requirements)
• Application procedures and deadlines