How Much Can You Save with the ITC?
The ITC allows you to claim 30% of the total cost of your solar system with no maximums. For the average solar panel system size, the ITC represents about $7,500 in savings—a major reduction in the overall cost. However, the total credit varies based on the size of the system installed. A larger system will save more with the ITC than a smaller system.
Owners of solar systems installed between 2022 and 2034 are entitled to a 30% tax credit. Unless it is renewed by Congress, the ITC will expire in 2035. This credit can only be applied for once.
If the ITC exceeds the amount you owe in federal income taxes that year, the unused portion of the ITC is not lost but rolls over to subsequent tax years. For example, if your ITC was worth $7,500 but you only owed $7,000 in federal income tax, you could apply the remaining $500 ITC toward your federal income tax in the following year.
State and Local Solar Incentives
State and local solar incentives can also help reduce the upfront costs of installing solar energy systems. These incentives can include tax credits, rebates, grants, and other financial incentives provided by state and local governments.
When paired with the federal Investment Tax Credit (ITC), which provides a notable tax break covering a portion of the installation costs, the total financial advantages can be considerable. For example, a homeowner might receive a state rebate that covers 10% of the installation cost, and then apply the ITC to further reduce their tax liability by 30% of the remaining cost. By leveraging these combined incentives, homeowners can lower their initial investment, accelerating the adoption of solar energy and contributing to environmental sustainability.
Each state or city has different incentives available to solar owners, including state tax credits. Tax credits for solar energy are financial incentives provided by the government to encourage the adoption of renewable energy. For example, through the Renewable Energy Systems Tax Credit, Utah homeowners can claim 25% of solar system costs or $400, whichever is less when they go solar. The ITC can be combined with other state and local incentives to further reduce the overall cost of a solar installation. By taking advantage of both federal and local tax credits, individuals and businesses can significantly lower their initial investment, making solar energy more affordable and accelerating the transition to sustainable power sources. Learn more about the local incentives that apply to you.
Net metering is a billing arrangement through local utility companies. While not every state participates in net metering, it is a great incentive for solar adopters to whom it is available. net metering with the Investment Tax Credit (ITC) expands the financial benefits for solar energy users.
Tax exemptions are another financial incentive available when making the switch to solar. Tax exemptions save money by limiting which taxes some solar customers must pay. The most common types of tax exemptions are property tax and sales tax exemptions.
- With a property tax exemption, solar adopters will not have to pay more in property tax when their property value increases after going solar.
- In states with sales tax exemptions, solar customers do not need to pay sales tax on the equipment installed, saving them money on the overall cost of their system.