Solar Incentives and Rebates for Homeowners (2023 Guide)

Oct 18, 2023

Solar energy helps protect our environment, reduce our carbon footprint and lower greenhouse gas emissions. Plus, it can lower power bills by about $1,500 annually. Yet only 8% of U.S. households have installed solar panels at home.

One reason is the price tag: the average cost of solar panels is more than $17,000, with many households spending as much as $25,000. What's more, it can take more than eight years for the investment to pay off.

Fortunately, there are programs designed to make solar more affordable. Many cities, states, utility companies and even community organizations offer additional incentives and rebates to encourage renewable energy adoption. This guide will cover which programs are available, how to apply and how to maximize your solar power investment.

Because cost can be a barrier to solar energy adoption, government agencies and utility companies across the U.S. offer three types of incentives: tax breaks, rebates and performance-based payments.

The amount and availability of incentives depend on many factors, like your location, income, and the size of your solar system. To find specific programs and incentives available in your area, use the Database of State Incentives for Renewable Energy (DSIRE).

Fortunately, there are various programs available to homeowners interested in saving money on solar — before, after and even on an ongoing basis. You can even combine many available incentives. Here are eight of the most popular solar incentives and rebates currently available.

The federal solar tax credit, also known as the solar investment tax credit (ITC), incentivizes homeowners to purchase a solar power system by reducing the amount of federal taxes owed. Currently, you can claim 30% of your total solar PV system cost as a tax credit. Anyone who files federal taxes is eligible for this credit, and there is no maximum dollar amount.

You can claim the federal tax credit once for the year you turn your solar power system on — not the year it was installed or purchased. Under the Inflation Reduction Act, the tax credit will decrease to 26% in 2033, then 22% in 2034 and phase out completely in 2035 unless renewed by Congress.

Because the federal solar tax credit is not a tax exemption or tax refund, you will not receive a check in the mail if the credit is larger than your taxes owed. However, the remainder is applied to next year's taxes and can roll over for up to five years.

In addition to the federal tax credit, many states offer their own solar tax credit to further reduce costs for homeowners. For example, South Carolina offers a tax credit worth 25% of the total cost of a solar system (including installation), and you can roll over any extra credits for up to 10 years.

Rather than a one-time cash rebate, a performance-based incentive (PBI) pays homeowners for solar energy produced and sent to the electric grid over time. The PBI is based on fixed energy rates (kilowatt-hours) over a contracted period, and you can combine it with other incentives.

One type of PBI is a feed-in tariff (FIT), which only a handful of states offer. These guarantee a payment higher than the grid's market price for electricity over the length of a contract, typically 15 to 20 years.

Another PBI is a Solar Renewable Energy Certificate (SREC), a tradable certificate or credit representing electricity generated from solar energy. Homeowners and businesses can earn and sell SRECs to bring in additional revenue on top of electricity savings. One megawatt-hour of electricity generated by a solar system produces one SREC, though market supply and demand determine the monetary value of SRECs.

Utility companies purchase SRECs to meet renewable energy mandates, such as Renewable Portfolio Standards, which require a percentage of electricity produced from solar and other renewables. Currently, SRECs are only available in a few states.

A utility rebate is offered by electric utility companies to encourage homeowners to install solar panels or other solar energy technologies on their properties. Companies typically offer rebates as upfront incentives you can receive directly from your utility provider.

Rebates can take various forms. They may provide a direct cash payment based on eligibility criteria, such as system size, installation requirements or customer type. Alternatively, they may come with a per-watt or per-kilowatt-hour incentive, where the rebate amount is calculated based on the solar system's energy output.

To obtain a rebate, homeowners typically must submit an application and provide documentation to verify their solar installation. The availability and amount of utility rebates can vary depending on the utility company and location.

Homeowners who install a solar system may also be eligible for property and sales tax exemptions. Specific tax exemptions and incentives vary by state.

With a property tax exemption, homeowners or businesses with solar panels do not have to pay additional property taxes based on their increased property value after installing solar. This exemption ensures your property tax burden remains unaffected by the presence of a solar power system, and is available in 36 states.

A solar sales tax exemption eliminates or reduces sales tax when you purchase solar energy equipment. The exemption can include solar panels, inverters, mounting racks, and other equipment and may also apply to labor and installation costs. Currently, 25 states offer sales tax exemptions.

Net energy metering (often called "net metering") allows solar panel owners to receive billing credits for extra electricity generated and sent back to the grid. When solar panels produce more electricity than you can use, the excess gets sent back to the grid, spinning the electric meter backward and earning credits.

These credits can offset grid consumption when solar panels are not generating enough energy, such as at night or on cloudy days.

Some homeowners may be eligible for grants or low-cost loans to help with the costs of purchasing and installing solar energy. Grants are basically "free money" awarded based on specified criteria (like income limits or property requirements).

Subsidized loans are typically provided as a subsidy or incentive and feature lower interest rates with favorable repayment terms, such as longer repayment periods, smaller monthly payments or deferred payment options. This type of loan gives borrowers greater financial flexibility and can help make an investment in solar energy more manageable.

The following government agencies offer financial assistance to help homeowners install solar systems and achieve lower energy costs:

In most cases, your solar energy installer will take care of available rebate and tax credit applications for you. Regardless, it's always good to be informed about the process.

Most programs provide clear instructions and application forms online. For example, to claim the federal solar tax credit, you must file IRS Form 5695 along with your return. You may want to consult with a tax professional for guidance on your specific financial situation.

Take the time to carefully read through the guidelines and requirements to ensure you submit a complete and accurate application. Remember to keep copies of your application and any correspondence for your records.

Applying for rebates and credits can significantly reduce the cost of solar installations and encourage renewable energy adoption. Here are strategies to help you get the most out of solar incentive programs.

Start by exploring the incentives provided by your state and local government. Many regions have unique programs aimed at promoting renewable energy. Additionally, utilities and solar equipment manufacturers often offer additional incentives. Use the DSIRE database and filter accordingly.

Different programs may have specific requirements related to the type of solar installation, equipment standards and location. Familiarize yourself with the eligibility criteria to ensure your solar system meets all the necessary qualifications. This knowledge will enable you to make informed decisions when selecting solar equipment and working with installers.

Experienced installers are well-versed in the requirements of various programs and can guide you through the solar process, ensuring compliance with all necessary regulations. Your provider will ensure correct solar system installation, including the necessary permits, so you can submit accurate documentation to receive any incentive benefits and rebates available to you.

Save and organize all paperwork (such as receipts, invoices and proof of installation) to help streamline the application process. Keeping thorough records can help you prepare to provide the necessary documentation when submitting your application, reducing potential delays and ensuring a smoother overall experience.

Researching your options, understanding eligibility criteria, working with a reputable installer and keeping organized records can help you maximize solar energy incentives and rebates. Taking advantage of incentives not only reduces your cost of going solar but helps promote sustainable energy practices to build a greener future.

Rebates for solar installations are like getting a refund or discount on the initial cost of your system. Tax credits allow you to reduce your state or federal tax burden based on the total cost of your solar system. Incentives are typically performance-based payments in exchange for solar energy production.

The federal solar tax credit, also known as the Investment Tax Credit (ITC), allows homeowners and businesses to deduct a percentage of the cost of their solar system from their federal tax burden.

No. To qualify for the federal solar tax credit, homeowners must own (through cash or financing) their solar system, among other eligibility criteria. You cannot claim the credit if you lease or obtain panels through a power purchase agreement (PPA).

Cristy Lynch is a lifestyle and personal finance writer based in Austin, Texas. She's a DIY’er with a passion for helping others make the most out of their money. She's written for Credit Karma and The Penny Hoarder. Her work has also been featured on HuffPost, The Street, Experian, and GOBankingRates.

Tori Addison is an editor who has worked in the digital marketing industry for over five years. Her experience includes communications and marketing work in the nonprofit, governmental and academic sectors. A journalist by trade, she started her career covering politics and news in New York's Hudson Valley. Her work included coverage of local and state budgets, federal financial regulations and health care legislation.