Solar Tax Credits & Incentives: Federal, State & Local Programs (2024)

Going solar is one of the largest home investments you’ll make — but a well-structured combination of solar tax credits and incentives can cut your out-of-pocket cost by 40% or more. This guide breaks down every major program available in 2024: the federal Investment Tax Credit, state-level rebates and exemptions, utility programs, and low-income provisions — plus exactly how to stack them for maximum savings.

The Federal Solar Investment Tax Credit (ITC): The Biggest Incentive Available

The cornerstone of any solar savings strategy is the federal solar Investment Tax Credit. Under the Inflation Reduction Act, the ITC allows homeowners to claim 30% of the total installed cost of a new solar energy system directly against their federal income tax bill.

According to the IRS Residential Clean Energy Credit guidance, this 30% rate applies to systems installed from 2022 through December 31, 2025, with no annual cap and no lifetime dollar limit. On a $20,000 system, that’s a $6,000 credit — not a deduction, but a dollar-for-dollar reduction in what you owe the IRS.

ITC Phase-Out Schedule: Act Before Rates Drop

The IRA solar incentives won’t stay at 30% forever. According to the Federal Solar Tax Credit 2024 Guide published by MyHomeQuoter, the rate schedule is:

The window is open and wide right now. Homeowners who delay past 2032 will see meaningfully smaller credits — and those who wait until 2035 lose the residential credit entirely.

What Expenses Qualify?

Not every line item on your installer’s quote is eligible. According to MyHomeQuoter’s Federal Solar Tax Credit 2024 Guide, the following costs do count toward your 30% credit:

• Solar panels and modules
• Inverters (string, microinverters, or power optimizers)
• Mounting hardware and racking
• Installation labor
• Electrical work directly tied to the solar system
• Permits and inspection fees
• Sales tax on eligible equipment
• Battery storage systems that are charged exclusively by solar panels

The following costs do not qualify:

• Financing fees, loan origination costs, and interest
• Routine maintenance or insurance
• Home improvements unrelated to the solar installation (e.g., roof replacement beyond what’s structurally required)

Understanding this distinction matters when you’re comparing solar panel cost estimates — make sure your installer provides an itemized quote so you can accurately calculate your eligible credit amount.

Who Is Eligible?

According to the IRS, you can claim the Residential Clean Energy Credit if:

• The solar property is new — previously owned or used equipment does not qualify
• The system is installed at your primary residence or a secondary home you personally use (vacation homes qualify if you spend time there)
• The property is located in the United States
• You own the system — leased systems or power purchase agreements (PPAs) do not qualify for the homeowner credit (the leasing company claims it instead)

The credit is nonrefundable, meaning it can reduce your tax liability to zero but won’t generate a refund check. However, any unused credit carries forward to future tax years, so you won’t lose it if your bill is smaller than the credit amount in a given year.

How to Claim the Federal ITC: IRS Form 5695

Claiming the credit is straightforward. According to MyHomeQuoter’s Federal Solar Tax Credit 2024 Guide, you file IRS Form 5695 (Residential Energy Credits) alongside your standard federal tax return (Form 1040). The form walks you through calculating your eligible costs and transferring the credit amount to your 1040.

Key steps:

1. Gather all receipts and your installer’s final invoice
2. Identify which line items are ITC-eligible (see the list above)
3. Complete Part I of Form 5695 to calculate your credit
4. Transfer the credit to Schedule 3 of your Form 1040
5. If your credit exceeds your tax liability, note the carryforward amount for next year’s return

Consider working with a tax professional for your first solar return — the math is simple, but confirming carryforward treatment and coordinating with state credits adds complexity.

State Solar Incentives: A Program-by-Program Overview

Federal incentives are just the starting point. Most states layer on additional programs that can add thousands more in savings. Here’s what the major solar markets offer.

California

California doesn’t offer a direct state solar tax credit, but its incentive ecosystem is still robust:

• Net Energy Metering (NEM 3.0): California’s revised net metering program credits solar owners for excess electricity exported to the grid. While NEM 3.0 reduced export rates compared to its predecessor, pairing solar with battery storage maximizes bill savings under the new structure.
• Property Tax Exclusion: California excludes the added value of a solar installation from property tax assessments through at least 2024, meaning your home’s assessed value won’t rise because of your panels.
• Sales Tax Exemption: Solar equipment purchases are exempt from California sales tax.

New York

New York offers one of the most generous state-level stacks in the country:

• NY-Sun Incentive Program: Administered by NYSERDA, this program provides upfront rebates for residential solar installations, with incentive levels varying by utility territory.
• 25% State Tax Credit: New York homeowners can claim a state income tax credit equal to 25% of solar installation costs, up to $5,000. Combined with the 30% federal ITC, New York residents can offset 55% of system costs through tax credits alone.
• Property Tax Exemption: Solar systems are exempt from property tax increases for 15 years.
• Net Metering: Full retail-rate net metering is available statewide.

Texas

Texas has no state income tax, so a state solar tax credit isn’t applicable. However:

• Property Tax Exemption: Texas law exempts 100% of the added home value from a solar installation from property taxes — a significant long-term benefit in a state with high property tax rates.
• Utility Rebates: Several Texas utilities, including Austin Energy and CPS Energy, offer rebates for solar installations. Program availability and amounts vary by utility territory.
• Net Metering: Texas does not mandate statewide net metering, but many utilities offer some form of excess generation credit.

Florida

Florida’s solar incentives focus on tax relief:

• Sales Tax Exemption: Solar energy equipment is fully exempt from Florida’s 6% sales tax.
• Property Tax Exemption: Florida exempts the full value added by a solar installation from property tax assessments.
• Net Metering: Florida has a statewide net metering policy, though the Florida Public Service Commission has been reviewing its structure.

Massachusetts

Massachusetts consistently ranks among the top states for solar incentives:

• SMART Program (Solar Massachusetts Renewable Target): This production-based incentive pays solar owners a fixed rate per kilowatt-hour generated for 10 years. Rates vary by utility and system size.
• State Tax Credit: Massachusetts offers a 15% state income tax credit on solar installations, up to $1,000.
• SREC Market: Massachusetts has an active Solar Renewable Energy Certificate (SREC) market. Each megawatt-hour your system generates earns one SREC, which you can sell to utilities required to meet renewable energy standards.
• Sales Tax Exemption: Solar equipment is exempt from Massachusetts sales tax.
• Net Metering: Robust net metering policy available statewide.

Finding Incentives in Your State

The most reliable way to research programs in your specific location is the DSIRE database (Database of State Incentives for Renewables & Efficiency), maintained by NC State University. DSIRE is the most comprehensive source of information on state, local, utility, and federal incentives for renewable energy. You can search by zip code or state to see every active program — including utility-specific rebates that don’t appear in general searches.

Solar Renewable Energy Certificates (SRECs)

In states with active SREC markets — including Massachusetts, New Jersey, Maryland, Pennsylvania, and Ohio — solar owners earn one certificate for every 1,000 kilowatt-hours (1 MWh) their system generates. These certificates can be sold to utilities and energy suppliers that need them to meet state renewable portfolio standards.

SREC prices fluctuate based on supply and demand in each state’s market. In high-demand markets like New Jersey and Massachusetts, SRECs have historically traded for $200–$400 each. A typical 8 kW residential system might generate 8–10 SRECs per year, creating a meaningful ongoing income stream on top of electricity bill savings.

Utility Rebate Programs

Many electric utilities offer their own rebates for solar installations, independent of state programs. These typically come as upfront bill credits or checks after installation. Common structures include:

• Per-watt rebates: A fixed dollar amount per watt of installed capacity (e.g., $0.20/watt on a 8,000-watt system = $1,600)
• Flat rebates: A fixed amount regardless of system size
• Battery storage rebates: Separate incentives for adding battery storage, which is increasingly common

Utility rebates are generally considered taxable income, but they also reduce your system’s cost basis — which in turn reduces the dollar amount of your federal ITC. For example, if you receive a $1,500 utility rebate on a $20,000 system, your ITC is calculated on $18,500, not $20,000. Factor this into your calculations when reviewing solar panel ROI and savings projections.

Low-Income Solar Programs

The Inflation Reduction Act included specific provisions to expand solar access for low- and moderate-income households.

IRA Low-Income Bonus Credits

The IRA created additional bonus credits for solar projects serving low-income communities:

• Low-Income Communities Bonus: An additional 10% ITC credit for solar projects in designated low-income census tracts
• Low-Income Residential Bonus: An additional 20% credit for projects that benefit low-income households directly

These provisions primarily apply to community solar and multifamily projects, but they expand access for renters and households that can’t install rooftop solar.

Community Solar Subscriptions

For renters or homeowners whose roofs aren’t suitable for panels, community solar programs allow you to subscribe to a share of a larger solar installation and receive bill credits. Many states have community solar programs with carve-outs specifically for low-income subscribers, offering discounted subscription rates.

LIHEAP and Energy Assistance

The Low Income Home Energy Assistance Program (LIHEAP) provides federally funded energy cost assistance to qualifying households. While LIHEAP doesn’t directly fund solar installations, it can offset energy bills while households pursue solar options through other programs.

How to Stack Solar Incentives for Maximum Savings

The real power of solar incentives comes from combining multiple programs. Here’s a simplified example for a New York homeowner installing an $18,000 solar system:

That’s a combined reduction of over 62% from the gross system cost. Actual numbers vary by system size, utility territory, and individual tax situation — but the principle holds across most states: stacking programs dramatically changes the financial picture.

A few rules to keep in mind when stacking:

1. Utility rebates reduce your ITC basis. Apply rebates first, then calculate your federal credit on the reduced amount.
2. State credits are separate from federal. Most state solar tax credits are calculated independently and don’t affect your federal ITC calculation.
3. SREC income is taxable. Account for this in your overall financial model.
4. Timing matters. The system must be installed and operational in the tax year you claim the credit.

To explore how these savings translate into long-term return on investment, see our full breakdown on solar panel ROI and savings.

Financing and How It Affects Your Incentives

The way you pay for solar affects which incentives you can access. If you own your system outright — through cash or a solar loan — you claim the federal ITC directly. If you lease your system or sign a power purchase agreement (PPA), the leasing company retains the ITC.

Solar loans preserve your access to all tax credits and rebates while spreading the upfront cost over time. Our guide to solar financing options covers the trade-offs between cash purchases, loans, leases, and PPAs in detail.

Choosing an Installer Who Understands Incentives

Not all solar installers are equally versed in local incentive programs. A knowledgeable installer will help you identify every applicable rebate, submit required utility paperwork, and provide the itemized invoice you need for IRS Form 5695. Our guide on how to choose a solar installer covers the questions to ask before signing any contract — including how to verify that an installer will handle incentive documentation correctly.

Key Takeaways

• The federal solar ITC provides a 30% credit on total installed costs through 2032 — claimed via IRS Form 5695
• The credit is nonrefundable but carries forward — you won’t lose unused amounts
• Only new equipment qualifies; used systems and leased installations do not
• State incentives vary widely — use DSIRE to find every program in your zip code
• Stack programs strategically — federal, state, utility, and SREC income can combine to cut net costs by 50% or more
• The 30% rate is locked in through 2032, but starts stepping down in 2033 — earlier installations capture the full benefit

The combination of IRA solar incentives and state programs makes 2024 one of the most financially favorable years on record to go solar. Understanding the full picture of available solar tax credits and incentives is the first step toward making a well-informed decision.