Despite the substantial cost savings that come with investing in home solar panels, many consumers worry about how to cover the upfront costs. It’s true that the cost of solar panels is one of the drawbacks to investing in solar energy. Thankfully, there are methods of bringing down the total cost of residential solar panels.
The federal solar tax credit
Currently, there is a federal tax credit in place that pays back 26 percent of the total cost of a home solar system. The Solar Investment Tax Credit (ITC) was created in 2005 to help lower the overall cost of solar panels and make them more affordable for consumers.
The federal tax credit is currently set at 26 percent, but it’s important to note that the percentage has gone down in recent years. It was initially set at 30 percent in 2019 and plans to reduce to 22 percent in 2023. As of now, the solar tax credit will expire in 2024 unless Congress renews it.
Another solar option with a lower upfront cost is a solar lease. With a residential solar lease, you pay a monthly fixed rate to a solar company. This company maintains ownership of the panels and system, but you are able to power your home using the electricity the panels generate.
Keep in mind that solar leases lead to lower-cost savings in the long run compared to purchasing solar panels. With a solar lease, you will also not be eligible for the federal tax credit or many other incentives and rebates.
A solar power purchase agreement (PPA) offers an additional alternative to paying for solar panels upfront. Solar PPAs work much like a solar lease, but the rate you pay each month to the solar company is determined by how much electricity your panels produce. The more energy they generate, the more you will pay every month.
Solar tax credits and rebates by state
Many states offer solar tax credits and rebates that can be paired with the solar ITC. Some of the top states for solar incentives include:
- California solar tax incentives: California offers a net metering program, which allows consumers to sell any extra solar power generated by their home solar panels back to the power grid.
- Texas solar tax incentives: There aren’t any state-wide solar incentives in Texas, but there are many local options available. For example, Austin homeowners are eligible for a $2,500 rebate for investing in solar panels.
- North Carolina solar tax incentives: In North Carolina, cities and counties can offer low-interest loans for energy-related projects, including solar panels. The state also allows a property tax exemption to ensure that consumers’ property tax does not increase after installing solar panels.
- Arizona solar tax incentives: In addition to the federal solar tax credit, Arizona residents who purchase solar panels can receive up to $1,000 back through the Residential Arizona Solar Tax Credit. They will also be exempt from sales tax on their purchase and their property taxes will not increase.
- Florida solar tax incentives: Consumers in Florida who buy a home solar system won’t be charged sales tax for the panels. Florida residents are also eligible for net metering programs, so they can sell excess electricity back to the grid.