When it comes to buying solar panels for your home, we’ve got good news and better news: the cost of solar power has fallen over 70 percent in the last 10 years, and there are still great solar rebates and incentives out there to reduce the cost even further. 

The first and most important solar incentive to know about is the federal solar tax credit, which can earn solar owners 26% of the cost to install solar panels back on their income taxes in the year after installation. 

States and utility companies also offer several types of solar incentives, and whether you qualify to claim them depends on where you live and other factors like your tax status. We cover each type of incentive below.

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Types of solar incentives available to homeowners 

There are several types of solar incentives available for home solar in states across the country. The specific mix of incentives available to you depends on your state and utility company. 

Below, we’ve outlined the kinds of incentives available, followed by links to state-specific solar incentives pages.

Federal tax credit 

The federal solar tax credit, also known as the solar investment tax credit or ITC, offers new solar owners in the United States a tax credit equal to 26% of costs they paid for their solar installation if completed in 2020. 

The ITC is designed to step down to 22% in 2021 and then settle at a permanent rate of 10% for commercial solar installations, and will be eliminated for homes, starting on January 1st, 2022.

Learn more: The federal solar tax credit explained

State tax credits 

Several states also offer tax credits for solar power. People who install solar in participating states earn extra money back on their state income tax bill the year after installation.

All state solar tax credits can be claimed in addition to the federal government’s investment tax credit. They vary in amount, but are usually a percentage of the total cost of the system. Almost all state tax credits have a maximum, with current amounts between $500 and $5,000, depending on the state.

Solar panel rebates 

States, utility companies, and solar panel manufacturers offer rebates that in most cases immediately reduce the cost to install solar panels. Rebates are a dollar-for-dollar reduction in the cost of solar, usually paid directly to installers and passed along as savings to the consumer.

Learn more: Solar panel rebates by state

Net metering 

Net metering is one of the most important ways in which residential solar panels benefit homeowners. Every kilowatt-hour (kWh) of electricity your panels make reduces your electricity bill by one kWh. 

Solar panels tend to make a lot of energy during the middle of the day, when most folks aren’t home to use it. Some solar energy is used to power your home’s appliances, and any extra is sent onto the grid and transmitted to your neighbors. Net metering ensures you get full credit for all that solar electricity.

Learn more: What is net metering and how does it work?

Solar Renewable Energy Credits (SRECs) 

SRECs are a special kind of compensation for clean energy generation that are used as an incentive in some states. Each SREC is basically “proof of generation” for one megawatt-hour (MWh) of solar electricity, and they have value to utility companies, who have to prove they’re buying a certain amount of solar energy to meet state standards. 

SRECs are typically sold in a marketplace through brokers that buy from energy producers (solar owners). Only a few states offer SREC markets, and most solar owners can only sell their SRECs for 5-10 years after installation. 

The value of SRECs varies widely by state, and is based on the penalties utility companies face if they don’t comply with the requirements. Income from the sale of SRECs must be reported to the IRS as part of a seller’s annual income.

Learn more: What is an SREC and how to get the best prices

Performance-based incentives (PBIs) 

Another kind of ongoing payment for electricity generation is known as a performance-based incentive, or PBI. These incentives are typically paid directly to the solar owner on their electricity bill as a “bonus” amount for every kWh of electricity produced by their solar panels. 

PBI payments are usually small amounts (under $.30/kWh or so) set forth in long-term contracts, and typically require the solar owner to sign over their SRECs to the utility. 

Few states offer PBIs. The most important programs of this type include the Massachusetts SMART solar program, the Rhode Island Renewable Energy Growth program, and several solar programs from utilities in Minnesota.

Tax breaks for installing solar panels 

This category refers to tax incentives for residential solar that aren’t direct credits. Several states offer sales and property tax exemptions for people who purchase solar installations for their homes.

These tax breaks don’t lead to additional direct savings over time, but they do help solar owners avoid taxes they might otherwise have to pay. 

Sales tax exemptions reduce the upfront cost of solar panels, while property tax exemptions protect solar owners from additional taxes on their home, due to the solar panels adding value to the home.

Who can qualify for solar incentives? 

Whether you can qualify for a solar incentive program depends on a few factors, including:

  • Incentive availability in your state
  • Whether you have tax liability
  • Your annual income

Yes, it’s true: some states don’t offer incentives for solar. In these places, solar can still make financial sense, but not because of anything the state legislature is doing to help homeowners go solar. 

The good news is everyone can qualify for the federal tax credit – as long as they have enough income to owe taxes. “Tax liability” is a fancy way of saying the amount that you pay in taxes.

Your annual income determines how much you owe, and if you make enough (and owe enough, after all other credits), you’ll be able to claim both federal and state solar tax credits. In many cases, you can claim these credits over multiple years if your tax liability is less than the total amount of the credits.

Low-income solar incentives 

Your annual income can also help you qualify for incentives in the opposite direction. If you make below the area median income in several states, you may qualify for low-income grants and rebates that can greatly reduce the cost to go solar – even making solar basically free in some places.

Learn more: Low-income solar incentives by state 

Do solar leases and PPAs qualify you for incentives? 

In almost all cases, people who get solar panels through a lease or power-purchase agreement (PPA) do not qualify for any financial incentives. Instead, the solar installation companies can claim these incentives, especially federal and state solar tax credits and SRECs.

The good news is that people who choose a solar lease or PPA in a state that offers incentives will likely find the per-kWh electricity price from the solar installer lower than people in states without incentives. 

PPAs almost never make better financial sense than buying solar with cash or a loan, but they can be good for people on low or fixed incomes who want to benefit from solar energy, but couldn’t qualify for tax incentives on their own.

Learn more: Solar lease vs. solar PPA

What solar incentives do you qualify for?

Solar incentives available to businesses 

Some solar incentives are available only to commercial solar installations. Businesses that install solar can claim the federal solar tax credit, but they also benefit from rules put in place that allow businesses to claim deductions based on certain capital expenses. 

These special tax deductions are known as the Modified Accelerated Cost Recovery System (MACRS) and bonus depreciation. Both allow businesses to deduct solar expenses from their income, which reduces their tax burden after installation.

Using both MACRS and bonus depreciation, businesses can greatly reduce the time it takes to recoup the costs of an investment in a solar energy system.

Learn more: How industrial solar panels benefit businesses

Solar incentives by state 

It’s useful to know about the kinds of solar incentives that exist, but what’s even more useful is to know which kinds are available to you. 

Click on your state from the list below to discover the solar incentives offered by state agencies and electric utility companies in your area. 

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Other places to find solar incentive information 

If you’re looking for more information about specific solar incentives, it may help to check out The Database of State Incentives for Renewables & Efficiency, or look for local solar advocates in your state who are fighting to pass good laws to help people go solar. 

Solar incentives change often, in amount and availability, and the best way to get current information is to get solar quotes from local installers, who have expertise in working with state and local governments. They will be able to assist you in applying for all the incentives you may qualify for.

The SolarReviews solar panel calculator can provide you with estimated system size, cost, and profit after incentives for your roof – as well as providing live pricing from installers.

Find out how much you can save with solar