Guide to Federal Solar Panel Incentives
August 8, 2021
Solar rebates and incentives are an effective way to reward solar photovoltaic (PV) system owners for making an eco-friendly energy transition, while also giving prospects the final push they need to go green with a viable alternative to traditional electricity sourcing.
By far the best benefit of going solar is decreasing your carbon footprint and choosing environmental health over complacency, but the financial perks are pretty great, too. Here are the federal incentives and rebates to consider if you currently have or are considering installing a solar PV system.
Residential Solar Incentives
Residential Renewable Energy Tax Credit
If your solar panel system is installed at a residence that you own, you’re eligible to claim the Residential Renewable Energy Tax Credit.
The credit covers the cost of labor for site preparation, assembly, installation, and connecting piping or wiring to your residence. If your tax liability is less than the tax credit, the excess credit will roll over into the following tax year.
Tax credit percentages depend on your installment date:
- 30% for systems installed by 12/31/2019
- 26% for systems installed after 12/31/2019 and before 01/01/2023
- 22% for systems installed after 12/31/2022 and before 01/01/2024
- No maximum credit is in place for systems installed after 2008
- Systems must be installed between January 1, 2006 and December 31, 2023
Also of note is that 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 rebates from utilities 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, the investment has to be reduced to the value of the subsidy. 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 except it’s a corporate subsidy exclusion rather than a personal one. Both have a subsidy rate of 100%.
Business Energy Investment Tax Credit (ITC)
The Investment Tax Credit offers varying tax credits for solar PV equipment use on a property.
This corporate credit has been amended a number of times. However, the values below will apply if your solar PV construction has begun by the dates listed:
- 26% on or after 12/31/20 and before 12/31/23
- 22% between 12/31/23 and 12/31/25
- Future years are 10%
Renewable Electricity Production Tax Credit (PTC)
This corporate tax credit is administered by the Internal Revenue Service (IRS) and allows taxpayers to sell their generated electricity and get credit for that taxable year. Stepdowns of the credit for certain technologies, such as wind, were put in place by legislation, but solar PV remains eligible at the full rate of $0.013/kWh.
You can claim your credit through the 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 bonus depreciation was increased to 100% by the Tax Cuts and Jobs Act for any qualifying property that has equipment placed into service between September 27, 2017 and January 1, 2023.
Energy-Efficient New Homes Tax Credit for Home Builders
This corporate tax credit is administered by the IRS and 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 December 31, 2021, meets statute energy saving requirements, and was acquired from a contractor after December 31, 2013 and before January 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 that have five or more units. The 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 eligibility.
This loan program helps homeowners to make energy-efficient improvements to a current residence or purchase a new energy-efficient home.
While some people are unfortunately denied loans, energy-efficient mortgages are insured by the Federal Housing Authority (FHA) and Veterans Affairs (VA) programs to guarantee loan approvals for those looking to make eco-friendly housing decisions.
USDA – Rural Energy for America Program (REAP)
REAP from the United States 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 make improvements to nonresidential facilities on their property to reduce energy consumption.
The loans and grants have their own applicable financial offers administered by the USDA:
- 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 has to be at least $5,000, with the grant portion not exceeding $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.
Applications are limited to one energy audit and one REDA per tax year with a maximum offer of $100,000 to help 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 – Loan Guarantee Program
This loan guarantee program is administered by the Department of Energy for borrowers with energy projects that are either in early stages of commercial use or that use significantly improved commercial technologies.
Full repayment is required by 30 years or when 90% of the energy system’s projected lifetime is reached. Interest rates are based on the borrower’s credit and are added to the loans.
More information on eligibility and interest rates can be found on the DOE’s loan guarantee program page.
[Related: Average Lifespan of Solar Panels]
USDA – High Energy Cost Grant Program
This grant program is administered by the USDA Rural Utilities Service to aid in the improvement of 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 nonprofits, commercial businesses, and 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:
- Electricity production, transmission, and distribution facilities
- Renewable energy facilities for on- or off-grid power generation
- Emergency and backup power generation and energy storage equipment
Federal Housing Authority (FHA) PowerSaver Loan Program
This loan program is administered through the FHA for residential and low-income residential borrowers to make upgrades or improvements to their renewable energy systems or energy-efficient appliances/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. Department of Energy’s 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 local, state, and tribal governments, electric cooperatives, schools, and 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 that the IRS will no longer process applications or issue loans for them as of January 30, 2018. Under this act, old CREBs created between January 22, 2009 and early 2018 have a reduced credit of 70%.
Qualified Energy Conservation Bonds (QECBs)
The QECBs loan program is administered by the IRS for local, state, and tribal governments to help in financing certain energy projects. QECBs are similar to new CREBs in that they’re qualified tax credit bonds.
Therefore, the issuer of the bond pays back only the principal amount, and the bondholder receives tax credits without the traditional bond interest.
Qualified energy conservation projects include:
- 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 January 1, 2018. Any issuer of QECBs that requested direct payments on or before December 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.