Solar Tax Credit By State In 2023: What You Need To Know (2023)

Installing your own solar power system can be an intimidating process, especially for your wallet. Adding one to your home is a significant investment—on average, solar panels cost about $16,000.

But, home solar power systems can save you a significant amount of money in the long term. Plus, there are several rebates and tax credits to help encourage homeowners to take the plunge and begin producing renewable energy. There are benefits at the federal, state and local level that may earn you money back for installing a qualifying system.

If you’re interested in comparing home solar systems, Forbes best solar panels guide can be a great starting point for beginning your research.


THIS IS AN ADVERTISEMENT AND NOT EDITORIAL CONTENT. Please note that we do receive compensation for any products you buy or sign up to via this advertisement, and that compensation impacts the ranking and placement of any offers listed herein. We do not present information about every offer available. The information and savings numbers depicted above are for demonstration purposes only, and your results may vary.

Power Your Home With Solar

SunPower has a network of trusted installers for your solar system, solar panels and electricity needs. Find a solar panel installer today!

Explore Options

(Video) The Solar Tax Credit Explained [2023]

What Is a Tax Credit?

Tax credits are a powerful tool that can help you reduce your taxable income and directly impact your annual tax bill.A dollar-for-dollar reduction of the income tax you owe, a tax credit can reduce the amount of tax you owe or increase your tax refund. They also differ from deductions and exemptions.

What Is the Federal Solar Tax Credit?

Installing solar panels earns you a federal tax credit. That means you’ll get a credit for your income taxes that actually lowers your tax bill.

The federal government enacted the solar Investment Tax Credit (ITC) in 2006. In the years since, the U.S. solar industry has grown by more than 10,000% with an average annual growth of 50% over the last 10 years. The industry has created hundreds of thousands of jobs and invested billions of dollars in the U.S. economy

You can qualify for the ITC for the tax year that you installed your solar panels as long as the system generates electricity for a home in the United States.

Related: Best Solar Companies


THIS IS AN ADVERTISEMENT AND NOT EDITORIAL CONTENT. Please note that we do receive compensation for any products you buy or sign up to via this advertisement, and that compensation impacts the ranking and placement of any offers listed herein. We do not present information about every offer available. The information and savings numbers depicted above are for demonstration purposes only, and your results may vary.

Compare Quotes From Top-rated Solar Panel Installers

Select a State To Get Started With Your No Commitment, Free Estimate

Find a Solar Panel Installer

(Video) Federal Solar Tax Credit Guide - How it Actually Works & What You Need to Know

How Does the Federal Solar Tax Credit Work?

When you purchase a solar photovoltaic (PV) system during the tax year, you are eligible for a Federal Solar Tax Credit that you can claim on your federal income taxes for a percentage of the cost of the system.

In 2021, the ITC provided a 26% tax credit for systems installed between 2020 through 2022. The ITC will now provide 30% for systems installed in tax years 2022 through 2032. So, when deciding whether to install solar panels, factor in a 26% to 30% discount.

It’s essential to note that you can only claim the credit once. If the taxes you owe that year are less than the credit you earned, your credit will roll over to the following year. Also, remember that the credit is a deduction, not a refund.

What Does the Federal Solar Tax Credit Cover?

If you are a homeowner that recently installed a solar panel system in 2022, you are eligible to claim a federal tax credit that covers 30% of the following:

  • Solar panels cost
  • Solar equipment costs like inverters, wiring and mounting hardware
  • Labor costs for solar panel installation, including fees related to permitting and inspections
  • Solar power storage equipment costs like solar batteries. Storage devices must have a capacity rating of at least 3 kilowatt-hours (kWh).
  • Sales taxes paid for eligible solar installation expenses (though some states waive sales tax on PV system equipment)

Federal Solar Tax Credit Eligibility

You can qualify for the ITC as long as your solar system is new or being used for the first time between January 1, 2006 and December 31, 2023. Unless Congress renews the ITC, it expires in 2024.

Other requirements include:

  • You must own the system outright (not lease it)
  • The system must be located in the United States
  • The system must be located at your primary or secondary U.S. residence or for an off-site community solar project

Solar Energy System Eligibility

To be eligible for the Federal Solar Tax Credit, you must install a solar energy system that provides electricity for a residence, such as solar water heaters or a solar photovoltaic (PV) system. Since solar water heatersuse the sun’s thermal energy to heat water and solar photovoltaic (PV) systems convert the sun’s light energy into electricity, both systems will qualify for the Federal Solar Tax Credit.

Solar Water Heaters

Solar water heaters are a cost-effective way to generate hot water for your home. Offered in various designs that include a solar collector and storage tank, solar water heaters use the sun’s thermal energy to heat your home’s water.

Solar Panels (Photovoltaic Systems)

Solar panels, also known as photovoltaic (PV) panels, are flat constructions resembling windows that convert light from the sun (in the form of energy particles known as photons) into electricity. Offered in three types such as monocrystalline, polycrystalline and thin-film, solar panels can significantly reduce your electricity bill.

How to Claim Solar Tax Credit

Following your solar power installation, you can only claim the tax credit once. Therefore, you should speak to your solar provider to supply the proper documentation and instructions, which include the following:

  1. FileIRS Form 5695as part of your tax return
  2. In Part I, calculate the credit of the tax form
  3. File your solar system as “qualified solar electric property costs”
  4. On line 1, enter your project’s total costs as written in your solar contract
  5. On lines 6a and 6b, complete the calculations
  6. On line 14, calculate any tax liability limitations using the IRS’sResidential Energy Efficient Property Credit Limit Worksheet
  7. On lines 15 and 16, complete the calculations
  8. On line 5, enter the exact figure from line 15 on your Schedule 3 (Form 1040)

You can also carry over any unused amount remaining on your tax credit that you could not claim in a single tax year.

How Do Other Incentives Affect the Federal Solar Tax Credit?

Solar customers can take advantage of incentives to reduce the total installation costs of their system, from electric utility rebates and renewable electric certificates to state government rebates and state tax credits. These reductions will affect the amount you report to the IRS on your tax return.

State Solar Incentives

Several states and Puerto Rico offer solar incentives in addition to the federal ITC to encourage homeowners to install solar. Each state has different incentives in place, but there are a few common ones: tax credits, rebates and renewable energy certificates. States with a high number of solar incentives include California, Texas, Minnesota and New York.

Each state has its own set of solar incentives that vary significantly. Different agencies offer different solar financial incentives, so talk to your installer and consult the Database of State Incentives for Renewables & Efficiency for specifics.

(Video) How The Solar Tax Credit Works (For Beginners)

State Tax Credits

State tax credits work in the same way that the federal ITC does, but for your state taxes. Exact amounts vary significantly from state to state, and they generally don’t reduce your federal tax credits.

State Government Rebates

Some states offer upfront rebates for installing a solar power system. They are typically only available for a limited time while funds are available, so research rebates in your state to get in on the incentive before it runs out. A state government rebate can reduce your solar costs by 10% to 20%.

Solar Renewable Energy Certificate

A Solar Renewable Energy Certificate (SREC), sometimes referred to as a Solar Renewable Energy Credit, is another type of state-level solar incentive. After you install your solar power system and register it with the appropriate state authorities, they will track your system’s energy production and periodically offer you SRECs as a benefit. You can sell your SREC to your local energy utility (or another buyer) to provide payment that’s typically considered taxable income.


THIS IS AN ADVERTISEMENT AND NOT EDITORIAL CONTENT. Please note that we do receive compensation for any products you buy or sign up to via this advertisement, and that compensation impacts the ranking and placement of any offers listed herein. We do not present information about every offer available. The information and savings numbers depicted above are for demonstration purposes only, and your results may vary.

Compare Quotes From Top-rated Solar Panel Installers

Free, No-commitment Estimates

Find a Solar Panel Installer

(Video) Updated - 2022 How the Solar Tax Credit Works | Jaime Greene the Solar Queen

Other Incentives

Local Utility Rebates

Local utilities often provide some financial incentives to encourage local homeowners to install solar power systems. Some offer rebates on energy bills based on how much energy the system produces, while others provide one-time subsidies to install a solar power system.

Incentives that pay you a per kilowatt-hour credit for the power that your system produces are known as PBIs, or performance-based incentives.

Subsidized Loans

Your state, local utility, or another non-government organization may offer subsidized loans to help you finance the purchase of your solar panel system. Before you purchase your system, discuss options for subsidized loans with an installer in your area—they’re likely to know every solar program available locally.

Tax Exemptions

In addition to tax credits, you may be eligible for certain tax exemptions after you install a solar system. Despite the fact that these systems will increase your property value, some states and municipalities will not include them when assessing property taxes, which means your property tax bill will not go up with solar installation.

Some states also have programs to ensure all purchases of solar power system components are exempt from state sales taxes, which could save you hundreds of dollars when you go to install your system.

Bottom Line

Combining these various solar tax credits and other financial incentives can save you money on your solar power system installation. While installing one requires a significant amount of money upfront, these programs will greatly reduce the system’s overall cost.

Your Home. Your Decisions. Our Support.

Get expert advice on your home, design tips, how much to pay for pros and hiring experts, delivered to you daily.

Thanks & Welcome to the Forbes Home Improvement Community!

{{ newsletterState.emailErrorMsg }}

I agree to receive the Forbes Home newsletter via e-mail. Please see our Privacy Policy for more information and details on how to opt out.

(Video) Claim a Tax Credit for Solar Improvements to Your House - IRS Form 5695


Will there be a tax credit for solar in 2023? ›

The federal solar tax credit, officially called the Residential Clean Energy Credit, has been extended through 2034 and expanded starting in 2023 after passage of the Inflation Reduction Act. The credit is worth 30% of the installed system costs through 2032, 26% in 2033, 22% in 2034 and expires after.

How does solar tax credit work if I get a refund? ›

This is a nonrefundable tax credit, which means you will not get a tax refund for the amount of the tax credit that exceeds your tax liability. Homeowners may get a tax refund at the end of the year due to the tax credit, if the reduction in tax liability means there was overpayment during the year.

What proof do I need for solar tax credit? ›

Form 5695 is the document you submit to get a credit on your tax return for installing solar panels on your home.

How long can you claim the solar tax credit? ›

In December 2020, Congress passed an extension of the ITC, which provides a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023. 4 The tax credit expires starting in 2024 unless Congress renews it. There is no maximum amount that can be claimed.

How does the solar tax credit work if I don't owe taxes? ›

If you don't owe any taxes (for example, if you're retired and don't have any income) then you wouldn't receive any money for the tax credit, because you didn't owe any money to begin with.

How to get a $10,000 tax refund? ›

Individuals who are eligible for the Earned Income Tax Credit (EITC) and the California Earned Income Tax Credit (CalEITC) may be able to receive a refund of more than $10,000. “If you are low-to-moderate income and worked, you may be eligible for the Federal and State of California Earned Income Tax Credits (EITC).

How do I carry over my solar tax credit? ›

Your tax credit can be deducted from federal income taxes over several years, but this tax credit carryover can only happen during the period the IRS solar tax credit is in effect, so you need to have used the full credit by the time the credit expires on January 1, 2032.

How does the 30% solar tax credit work? ›

How Will the Solar Tax Credit Save You Money? The credit lowers your federal taxes. So if you spend $24,000 on a system, you can subtract 30 percent of that, or $7,200, from your federal taxes. (You must take the credit for the year the installation is completed.)

Can I install solar panels myself and get tax credit? ›

To qualify for the tax credit, you must own the solar panels, have a taxable income, and it must be installed at your primary or secondary residence. Battery storage systems can also receive the 30% federal tax credit when charged exclusively with solar.

How does a tax credit work? ›

Tax credits can be divided into two types: Refundable and nonrefundable. A refundable tax credit allows a taxpayer to receive a refund if the credit they are owed is greater than their tax liability. A nonrefundable credit allows a taxpayer to only receive a reduction in their tax liability until it reaches zero.

What they don t tell you about solar panels? ›

Solar Panels Don't Require Maintenance

Despite what solar panel makers may tell you, maintenance of the panels is not a problem once you have them installed. Solar panel manufacturers try to get people to lease solar panels, insisting that then the homeowner won't have to worry about maintenance.

What are 3 bad things about solar energy? ›

The cons are that it only produces energy when the sun is shining, needs a significant amount of land, and that certain solar technologies require rare materials.

What are 3 negatives about solar energy? ›

Solar isn't perfect – here are some disadvantages of solar energy to keep in mind when considering installing solar panels: Solar doesn't work for every roof type. Solar isn't ideal if you're about to move. Low electricity costs = low savings.

Why is my Edison bill so high if I have solar? ›

If you received a high utility bill, chances are, you're consuming more energy than the amount used to design your solar system. This can occur during the day or at night. Keep in mind that once the sun goes down, your solar panels are no longer producing power.

Can you get the federal solar tax credit twice? ›

Can you claim the solar tax credit twice? You can only use this tax credit once on each completed installation. But you could seek it again if you install a separate system or major new addition to the first system.

What is the smartest thing to do with tax refund? ›

If you are one of the lucky ones with a steady income, consider using the money from this year's tax return to build up your emergency fund. For years, financial experts have recommended that people squirrel away three to six months of expenses in a money market or savings account for that rainy day — or year.

When should I expect my tax refund 2023? ›

When Will the IRS Start Accepting 2023 Tax Returns and Issuing Refunds? The IRS has announced it will start accepting tax returns on January 23, 2023 (as we predicted as far back as October 2022). So, early tax filers who are a due a refund can often see it as early as mid- or late February.

How can I make sure I get the biggest tax refund? ›

How to Get the Biggest Tax Refund in 2023
  1. Select the right filing status.
  2. Don't overlook dependent care expenses.
  3. Itemize deductions when possible.
  4. Contribute to a traditional IRA.
  5. Max out contributions to a health savings account.
  6. Claim a credit for energy-efficient home improvements.
  7. Consult with a new accountant.
Jan 24, 2023

What is the IRS energy tax credit for 2023? ›

Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures during the year, and (3) home energy audits ...

Do you get all the money from a tax credit? ›

For example, if you end up with no taxes due and you qualify for a $2,000 refundable tax credit, you will receive the entire $2,000 as a refund.

What is a downside of receiving a tax refund? ›

You're not keeping that money within your own decision-making powers. Sure, it'll come back when you file taxes and receive your refund, but for many months out of the year, that money has not been working on your behalf for things like your investments, savings goals, or debt payoff.

Do you get money back from tax credits? ›

The credit can eliminate any federal tax you owe at tax time. If the EITC amount is more than what you owe in taxes, you get the money back in your tax refund. If you qualify for the credit, you can still receive a refund even if you do not owe income tax.

What are 2 problems with solar panels? ›

Disadvantages of Solar Energy
  • Cost. The initial cost of purchasing a solar system is fairly high. ...
  • Weather-Dependent. Although solar energy can still be collected during cloudy and rainy days, the efficiency of the solar system drops. ...
  • Solar Energy Storage Is Expensive. ...
  • Uses a Lot of Space. ...
  • Associated with Pollution.
Feb 24, 2023

What to watch out for when getting solar panels? ›

15 Things to Consider Before Installing Rooftop Solar Panels
  • Does your roof need repairs? ...
  • What is the shape of your roof? ...
  • Which direction do the slopes of your roof face? ...
  • How much weight can your roof handle? ...
  • Where will the water go? ...
  • What about nature's other surprises? ...
  • How do you connect to the grid?

What can ruin solar panels? ›

3 Common Ways Solar Panels Can Be Damaged:
  • Twigs, Leaves and Dirt: Debris can scratch your solar panels and lower the amount of energy produced. ...
  • Hail Storms: Bad weather is damaging to all roofs, and hailstorms are no exception. ...
  • Water Damage: Your solar panels are sealed just like your windows.
Feb 22, 2019

Do solar panels affect home insurance? ›

You may not see an increase in your homeowners insurance premium after installing solar panels on your roof. However, you'll likely need to raise your coverage limits to account for the replacement cost of your solar panels, which will likely result in some increase to your premium.

What is the biggest problem with solar? ›

What is the biggest problem with solar energy? Among the disadvantages of photovoltaic power generation, the one that stands out the most is its initial value. Despite paying off the investment in a few years, the value can still be high for some homeowners and even small businesses.

Do solar panels damage your roof? ›

Solar panels are a great way to reduce your carbon footprint and save on energy costs. However, some people worry that solar panels may damage their roof. There is no need to worry! Solar panels are actually quite gentle on roofs.

What are 5 bad things about solar energy? ›

The Top 5 Disadvantages of Solar Energy
  • Solar Panel Installations Can Be Expensive. ...
  • Solar Energy Doesn't Work at Night. ...
  • Solar Energy Storage is Expensive. ...
  • Solar Panels are Difficult to Move Once Installed. ...
  • Some Solar Panels Use Rare Earth Metals.

Do solar panels cause roof leaks? ›

In virtually all cases, the answer is no. Roof leaks after solar panels are extremely rare. When roof leaking after the solar panels are fitted does occur, however, it usually becomes evident very quickly after the installation process is finished.

What happens to solar panels after 25 years? ›

The industry standard for the lifespan of solar panels is 25-30 years. However, a solar panel won't die after 25-30 years – rather, its power output will decrease a significant amount below what the manufacturer projected.

What are the solar tax benefits for 2023? ›

At 30%, the tax credit is worth $7,500 for a $25,000 solar system — effectively knocking the price down to $17,500. The credit was previously at 26% for systems installed in 2022 and scheduled to step down to 22% in 2023 before going away entirely in 2024.

Will solar tax credit be renewed? ›

Will there be a tax credit for solar in 2023? The tax credit for solar was originally scheduled to decrease to 22% in 2023. With the recent signing of the Inflation Reduction Act of 2022, not only will the credit still be available, but it will also increase to a 30% credit effective until at least 2032.

What is the government solar panels program 2023? ›

What is the Government Solar Panels Program 2023? Funding is available to households under the government-backed ECO4 Scheme. Grants for solar panels will help households with low energy efficiency homes who are considered likely to face financial difficulties heating their homes.

How much does solar cost 2023? ›

The average cost of a solar panel installation in 2023 ranges from $16,870 to $23,170 after taking into account the federal solar tax credit, with an average solar installation costing about $20,020. On a cost per watt ($/W) basis, solar panel prices in 2023 average $2.86/W (before incentives).

How do I use my solar tax credit? ›

To claim the solar tax credit, you'll need to first determine if you're eligible, then complete IRS form 5695 and finally add your renewable energy tax credit information to Schedule 3 and Form 1040. Compare solar quotes on the EnergySage Marketplace to maximize your savings.

How does the solar 26% tax credit work? ›

How does the solar tax credit work? The solar tax credit is a non-refundable credit worth 30% of the gross system cost of your solar project. That means that if the gross system cost is $20,000, your tax credit would be $6,000 ($20,000 x 30%= $6,000).

Do I need to tell my electricity supplier I have solar panels? ›

If you install generation equipment like solar panels at your home, and the equipment is connected to the grid, your DNO must be notified. This is because they need to know if you're putting electricity onto the grid, so they can manage their networks efficiently. Most installations are connected to the grid.

Does solar increase home value? ›

Yes, solar panels will raise your home's property value. Although the added value can vary by location, the National Renewable Energy Laboratory (NREL) found that home value increases by $20 for every $1 saved on your utility bills. This translates to a higher market value when selling your home.

Will NEM 3.0 pass? ›

Did NEM 3.0 Pass? Yes, on December 15, 2022 the CPUC unanimously voted to approve NEM 3.0, also known as the Solar Billing Plan.

How many years does it take for solar to pay for itself? ›

The most common estimate of the average payback period for solar panels is six to ten years. This is a pretty wide range because there are many factors that will influence the number of years it can take to pay off your panels and the monthly savings you can expect.

Will solar be cheaper in the future? ›

That said, the cost of solar will continue to trend downward – just at a less rapid pace; Bloomberg has predicted that the cost of solar will decrease by about 34% by 2030, which is still a sizable decrease!

Is it a good time to buy solar? ›

Savings would nearly double by year three and would only continue to grow with time, as you are avoiding paying for the rising cost of energy. And that is a good reason to get solar panels for your home right now.


1. Solar Tax Credit - NOT what I EXPECTED
(Justin's Project)
2. Solar Tax Credit Extended
(Solar Surge)
3. 30% Solar Tax credit - The New 2022 Law - YOU MIGHT NOT BE ELIGIBLE
(Justin's Project)
4. Why The US Federal Tax Credit For Solar (ITC) Sucks! - Don't Take The Solar Sales Guy's Word For It
5. Tax Refund 2023 - Latest Update on Taxes From the IRS
(ClearValue Tax)
6. "Solar Tax Credit - Save Money Now!"
(Accounting to Scale)
Top Articles
Latest Posts
Article information

Author: Sen. Ignacio Ratke

Last Updated: 02/22/2023

Views: 6097

Rating: 4.6 / 5 (76 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Sen. Ignacio Ratke

Birthday: 1999-05-27

Address: Apt. 171 8116 Bailey Via, Roberthaven, GA 58289

Phone: +2585395768220

Job: Lead Liaison

Hobby: Lockpicking, LARPing, Lego building, Lapidary, Macrame, Book restoration, Bodybuilding

Introduction: My name is Sen. Ignacio Ratke, I am a adventurous, zealous, outstanding, agreeable, precious, excited, gifted person who loves writing and wants to share my knowledge and understanding with you.