Solar Incentives by State

The federal Investment Tax Credit (ITC) allows homeowners to deduct 30% of the total cost of a solar panel installation from their federal income taxes. This includes the cost of panels, inverters, mounting equipment, wiring, labor, and permitting fees. The 30% rate is available for systems installed through 2032. In 2033, the credit drops to 26%, and in 2034, it drops to 22%. The ITC is a nonrefundable tax credit, meaning you must owe federal taxes to claim it, but unused credit can be rolled forward to future tax years.

Solar Renewable Energy Credits (SRECs) are certificates generated by your solar system, with one SREC created for every megawatt-hour (MWh) of solar electricity produced. In states with SREC markets (like New Jersey, Maryland, Massachusetts, Illinois, Ohio, and Pennsylvania), utilities must buy SRECs to meet their renewable energy requirements. You can sell your SRECs for additional income, typically ranging from $10 to $350 per SREC depending on the state. SRECs provide ongoing revenue beyond electricity savings and can significantly improve your solar ROI.

Net metering is a billing arrangement where your utility credits you for excess solar electricity you send to the grid. When your panels produce more electricity than you consume, the excess flows to the grid and your meter effectively spins backward. You receive credits (typically at the full retail electricity rate) that offset your consumption at other times, like at night. At the end of each billing period, you pay only for the net electricity consumed. Policies vary by state and utility, with some states offering full retail rate credits and others providing reduced compensation.

Several states offer their own tax credits for solar in addition to the federal ITC. Notable state tax credits include: South Carolina (25% with no cap), New York (25% up to $5,000), Massachusetts (15% up to $1,000), Hawaii (35% up to $5,000), Arizona (25% up to $1,000), and Iowa (15% up to $5,000). These state credits can be stacked with the federal ITC, further reducing your out-of-pocket cost. Some states also offer sales tax exemptions, property tax exemptions, and rebate programs that provide additional financial benefits.

Many states offer property tax exemptions for solar energy systems, meaning the value that solar adds to your home is excluded from property tax assessments. States with full property tax exemptions include Arizona, Colorado, Connecticut, Florida, Maryland, Massachusetts, New Jersey, New York, and Texas, among others. This is a significant benefit because solar typically adds $15,000-$25,000 or more to your home value. Without the exemption, this could mean hundreds of additional dollars in annual property taxes. Check your state's specific policies, as some exemptions are offered at the local level.

When you lease solar panels or enter a Power Purchase Agreement (PPA), the leasing company, not you, claims the federal tax credit, SRECs, and other owner-based incentives. This is factored into your lower monthly payments. However, you still benefit from reduced electricity costs without upfront investment. Some state and utility rebate programs are only available to system owners. If maximizing incentives is important to you, purchasing the system (with cash or a loan) ensures you capture all available tax credits, SRECs, and rebates directly.