Guide to Federal Solar Panel Incentives
August 8, 2021
Solar panel incentive and rebates are effective ways to reward solar photovoltaic (PV) system owners for making an eco-friendly energy transition. They also give prospects the final push they need to go green with a viable alternative to traditional electricity.
By far, the best benefits of going solar are decreasing your carbon footprint and choosing environmental health over complacency. Nonetheless, the financial perks are pretty great, too.
Here are the federal incentives and rebates to consider if you currently have or plan to install a solar PV system.
Residential Solar Incentives
Residential Renewable Energy Tax Credit
If you install your solar panel system at a residence you own, then you’re eligible to claim the Residential Renewable Energy Tax Credit.
The credit covers the labor costs for site preparation, assembly, installation and piping or wiring connection to your residence. If your tax liability is less than the tax credit, the excess credit will roll over to the following tax year.
If it weren’t for another extension, via the Inflation Reduction Act, the credit would have expired in 2024. Fortunately, the Inflation Reduction Act increased and extended the credit to 30% through 2032. The credit is now set to reduce to 26% in 2033 and 22% in 2034, after which it will expire if Congress doesn’t renew it again.
Notably, the taxpayer’s primary residence doesn’t have to be the location of the installation.
Residential Energy Conservation Subsidy Exclusion (Personal)
This personal tax exemption applies to residential and multifamily residential properties as an energy conservation subsidy with a 100% incentive amount. Energy conservation measures imply that utility rebates for residential PV systems aren’t taxable. So if your public utility company provides you with this type of subsidy, they’re nontaxable.
However, when a taxpayer claims federal credits or deductions for the conservation, they must reduce the investment to the subsidy’s value. Ultimately, a taxpayer can’t get credit for an expense they didn’t pay.
Commercial Solar Incentives
Residential Energy Conservation Subsidy Exclusion (Corporate)
This corporate tax exemption is the same as the above incentive. The main difference is that it’s a corporate rather than a personal subsidy exclusion. Both have a subsidy rate of 100%.
Renewable Electricity Production Tax Credit (PTC)
The Internal Revenue Service (IRS) administers this corporate tax credit, which allows taxpayers to sell their generated electricity and get credit for that taxable year. Legislation placed step-downs of the credit for certain technologies, such as wind. However, solar PV remains eligible at the full rate of $0.013 per kWh.
You can claim your credit through IRS Form 8835 (Renewable Electricity Production Credit) and Form 3800 (General Business Credit). The credit applies for the first 10 years of your system’s operation. Any unused credit will carry over for up to 20 years or be carried back one year if a taxpayer files an amended return.
Modified Accelerated Cost-Recovery System (MACRS)
This corporate depreciation incentive allows depreciation deductions for businesses to recover their investments in solar PV systems on certain properties. The MACRS has a set of class lives for varying properties, ranging from three to 50 years.
In 2017, the Tax Cuts and Jobs Act increased the bonus depreciation to 100% for any qualifying property that has equipment placed into service between Sept. 27, 2017, and Jan. 1, 2023.
Energy-Efficient New Homes Tax Credit for Home Builders
The IRS administers this corporate tax credit, which applies to the construction sector. Your home qualifies for the Energy-Efficient New Homes Tax Credit for Home Builders if it’s located in the U.S., was completed before Dec. 31, 2021, meets statute energy-saving requirements, and was acquired from a contractor after Dec. 31, 2013, and before Jan. 1, 2022.
Depending on your energy savings and home type, your incentive can range from $1,000 to $2,000 for the tax year.
Bond, Loan and Grant Programs for Solar PV Power
Fannie Mae Green Financing – Loan Program
This loan program applies to owners of multifamily properties with five or more units. The solar panel incentive helps apartment building and cooperative owners with their mortgage to finance efficiency improvements for their energy and water systems.
Getting in touch with a Fannie Mae DUS lender will help you learn more about the program and determine your eligibility.
This loan program helps homeowners make energy-efficient improvements to a current residence or purchase a new energy-efficient home.
While the program unfortunately denies some people loans, the Federal Housing Authority (FHA) and Veterans Affairs (VA) programs insure energy-efficient mortgages to guarantee loan approvals for those looking to make eco-friendly housing decisions.
USDA – Rural Energy for America Program (REAP)
REAP from the U.S. Department of Agriculture (USDA) offers both loan guarantees and grants to help small businesses and agricultural producers in rural areas purchase, install and build renewable energy systems and/or improve nonresidential facilities on their property to reduce energy consumption.
The loans and grants have their own applicable financial offers that the USDA administers:
- Grants: Maximum of 25% of the project’s proposed cost; renewable grants are between $2,500 and $500,000, and efficiency grants are between $1,500 and $250,000
- Loans: Maximum of $25 million
The combined total of both grants and loans can’t be more than 75% of the project’s total cost, and the total has to be at least $5,000. The grant portion cannot exceed $1,500.
USDA – REAP Energy Audit and Renewable Energy Development Assistance (EA/REDA) Program
The REAP EA/REDA Program helps agricultural producers and small businesses in rural areas with technical assistance and site assessments for their renewable energy systems. Land grants for schools (except K-12), public universities and institutions are also applicable.
The program limits applications to one energy audit and one REDA per tax year, with a maximum offer of $100,000. That amount helps with salaries related to the renewable project, travel costs for the audits and development assistance, administrative fees and office supplies, utilities and project-related equipment.
U.S. Department of Energy (DOE) – Loan Guarantee Program
The DOE administers this loan guarantee program for borrowers with energy projects that either are in the early stages of commercial usage or use significantly improved commercial technologies.
You must repay in full by 30 years or when you reach 90% of the energy system’s projected lifetime. The program bases interest rates on the borrower’s credit and adds those rates to the loans.
You can find more information on eligibility and interest rates on the DOE’s loan guarantee program page.
[Related: Average Lifespan of Solar Panels]
USDA – High Energy Cost Grant Program
The USDA Rural Utilities Service administers this grant program to help improve renewable energy in rural areas.
Only communities that have energy costs 275% above the national home average are eligible for the grant. Retail power suppliers that serve (a) nonprofits, (b) commercial businesses and (c) state, local and tribal governments in rural areas are eligible.
Grants between $50,000 and $3 million are available for solar PV energy projects, including the following:
- Electricity production, transmission and distribution facilities
- Renewable energy facilities for on- or off-grid power generation
- Emergency and backup battery for home and energy storage equipment
Federal Housing Authority (FHA) PowerSaver Loan Program
The government administers this loan program through the FHA for residential and low-income residential borrowers to upgrade or improve their renewable energy systems or energy-efficient appliances and technologies.
There are three financing options:
- Home energy upgrade: $7,500
- Second mortgage: $25,000
- Energy rehab (203(k)): between $217,000 and $625,000, varies by location
Visit the U.S. Department of Housing and Urban Development (HUD) website to find an approved lender and learn about your eligibility.
Office of Indian Energy Policy and Programs – Funding Opportunities
This federal incentive from the U.S. DOE Office of Indian Energy Policy and Programs is a grant program providing financial, technical and educational assistance to tribal communities to develop renewable energy and energy-efficient technologies.
The funding aims to improve economic growth, energy use and employment on tribal lands.
Additional Solar PV Incentives
Clean Renewable Energy Bonds (CREBs)
This loan program applies to (a) local, state and tribal governments, (b) electric cooperatives, (c) schools and (d) select local lenders to finance renewable energy projects.
A bondholder can receive tax credits that will replace a portion of their bond interest, which in turn lowers a borrower’s interest rate. The issuer is responsible for repaying the bond’s principal.
However, the Tax Cuts and Jobs Act of 2017 repealed the authorization of new CREBs, meaning the IRS will no longer process applications or issue loans for them as of Jan. 30, 2018. Under this act, old CREBs created between Jan. 22, 2009, and early 2018 have a reduced credit of 70%.
Qualified Energy Conservation Bonds (QECBs)
Therefore, the bond issuer pays back only the principal amount, and the bondholder receives tax credits without the traditional bond interest.
Qualified energy conservation projects include the following:
- Development applications
- Renewable energy production
- Public buildings that reduce energy consumption by at least 20%
- Research applications
- Green community programs
- Mass commuting facilities
- Energy-related demonstration projects
- Public education campaigns related to energy efficiency
However, the Tax Cuts and Job Acts of 2017 repealed tax credit bonds as of Jan. 1, 2018. Any QECBs issuer that requested direct payments on or before Dec. 31, 2017, will continue to receive those payments.
[Related: Energy Independence Through Solar]
*Tax credits are subject to change. Consult your tax advisor regarding how incentives and rebates apply to your specific circumstances. Visit the DSIRE website for detailed solar policy information. We do not provide legal or tax advice.
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