Nowadays, As is known to us, Installing solar panels on your roof has many benefits. There’s good for the planet, which will appreciate that you reduce the burden of burning fossil fuels to keep the lights on. You’ll appreciate the fact that your electricity bills will be smaller than they used to be – and you might even be able to sell excess solar power back to the grid you once relied on. And then there’s your wallet, which will look better if you take advantage of some of the tax exemptions available to you.
There are a number of solar panel tax refunds at both the state and federal levels. We will explain to you what tax benefits are available and how you can use them.
Federal solar tax credit
The federal government is currently offering a tax credit to homeowners and businesses who want to install solar panels on a property. This is called the Solar Investment Tax Credit (ITC) and allows people to deduct up to 26% of the cost of installing solar panels. (As the law stands, this will fall to 22% in 2023 and disappear altogether in 2024.)
The federal solar tax credit covers the cost of solar panels, labor for the installation process, and additional equipment, including wiring, energy storage devices such as solar batteries, and sales tax paid on purchases made in states that do not offer sales tax exemptions.
One of the advantages of the federal ITC is that it covers purchased solar systems no matter how you finance you. Regardless of whether you buy your solar panels directly or finance them with a loan, the ITC is still available to you. It’s even available if you’re not a homeowner but live in a co-op situation and pay for part of the installation. However, the ITC does not apply if you lease solar panels: you must own them to receive the tax credit.
To claim the solar investment credit, you must file an IRS Form 5695 as part of your federal tax return. Following each step of the form will help you calculate your total deduction.
Each state offers its own set of exceptions and incentives to encourage people to buy and install solar panels on their homes. The two most common are property tax exemptions and sales tax exemptions.
Exemption from property tax
The most common state-level solar tax incentive is a property tax exemption. This allows homeowners to deduct the value of their solar system from the total value of their property, which helps keep their property taxes low. Because solar panels typically add value to a property, installing them would typically increase the amount of property taxes you would have to pay.
The exact exemption varies from state to state, but 25 states (plus Washington, DC and Puerto Rico) offer a property tax exemption to homeowners who install a solar system. Your solar system will automatically be excluded from your real estate value during the appraisal.
Sales Tax Exemption
The other commonly available tax incentive for solar system buyers is a sales tax exemption. This helps reduce the cost of purchasing a solar power system by exempting the equipment and other parts of the system from the standard sales tax that would otherwise be levied on a retail sale or transaction.
State and local sales and property tax credits may be available to individuals who purchase solar panels.
Exemption status depends on the laws of each state. Some exempt all parts of a solar system purchase, while others only exclude certain components. Currently, 25 states offer a sales tax exemption for solar systems. Sales tax exemptions should be automatically applied at the time of purchase.
Solar panels are a good investment in your property, your future and the planet. It gets even better if you can take advantage of federal and state tax credits on this purchase.
To find out what tax exemptions and incentives are available to you, check out DSIRE’s Database of State Incentives for Renewables and Efficiency, a service that tracks all solar incentives in the US and helps you determine which ones are available to you.
Find Policies & Incentives by State: