Top Federal and State Solar Tax Incentives You Should Know About

Thinking about going solar? You’re not alone—and you’re definitely on the right track. Solar energy is not only good for the environment, but it’s also an excellent way to slash your energy bills. But here’s the kicker: federal and state tax incentives can make solar even more affordable. If you’re looking to save big while making your home energy-efficient, this guide will walk you through the most valuable solar incentives you should know about in 2025 and beyond.

Why Solar Incentives Matter

Solar panel systems can be a significant upfront investment. The good news? Incentives are designed to ease the financial burden and make solar more accessible to homeowners and businesses. These come in various forms, from tax credits to rebates and performance-based incentives (PBIs).

1. The Federal Solar Investment Tax Credit (ITC)

Let’s start with the big one: the Federal Solar Investment Tax Credit, often just called the ITC.

How It Works

The ITC allows you to deduct a percentage of your solar installation costs from your federal taxes. In 2025, the ITC is set at 30%, and that applies to residential and commercial solar systems.

Example: If your solar system costs $20,000, you could get $6,000 off your tax bill.

Bonus Tip: This credit is only available if you own your system (not leased), and you must have a tax liability to claim it.

2. State-Specific Solar Tax Incentives

Many states have their own programs on top of the federal ITC. These incentives vary widely depending on where you live.

Popular Types of State Incentives

• State Tax Credits – Similar to the federal ITC but offered at the state level.
• Property Tax Exemptions – Some states won’t increase your property tax for adding solar panels.
• Sales Tax Exemptions – Avoid paying sales tax on your solar equipment.
• Net Metering Programs – Earn credits for the extra energy your system sends back to the grid.

Pro Tip: Want to learn how equipment placement can impact your solar efficiency and eligibility? Don’t miss this guide on strategic solar equipment placement for optimal performance.

3. Solar Renewable Energy Certificates (SRECs)

In some states, you can earn SRECs for every megawatt-hour (MWh) of electricity your solar system produces. You can then sell these certificates to utility companies who need to meet renewable energy quotas.

This incentive can mean hundreds to thousands of dollars in extra income per year—yep, just for generating clean power!

4. Local Utility Rebates

Many utility companies offer rebates for solar installations, especially if you use a certified installer. These rebates may be a flat amount or based on the size and efficiency of your system.

5. Performance-Based Incentives (PBIs)

Instead of upfront credits or deductions, PBIs pay you over time based on the amount of energy your system actually produces. These are typically offered by states or utility programs and can be a great way to ensure continued returns on your investment.

6. Solar Panel Sales Tax Exemptions

States like Florida and New Jersey offer full sales tax exemptions on the purchase of solar panels, meaning you don’t pay any tax when buying your solar equipment. That’s an immediate savings of up to 7% depending on your location.

7. Solar-Friendly Financing Options

While not technically a tax incentive, many government-backed financing options—like PACE (Property Assessed Clean Energy) programs—allow you to fund solar projects through your property taxes. It’s a great way to invest in solar without paying everything upfront.

Avoiding Common Solar Pitfalls

Understanding incentives is key, but so is knowing what can go wrong. If you’re new to solar, you might want to check out this solar panel problems troubleshooting checklist to avoid any hiccups after installation.

Also, depending on your property or space constraints, thin-film solar panels could be a better option over traditional panels. Learn the pros and cons before you invest.

How to Claim Solar Tax Credits

1. Keep all receipts and invoices related to your solar installation.
2. File IRS Form 5695 when you do your federal taxes.
3. Check your state’s website for specific forms or rebate applications.

Are Solar Incentives Going Away?

Nope—not yet. In fact, many programs are being extended or expanded as governments double down on clean energy goals. However, some incentives are scheduled to decrease or expire, so it’s smart to take action sooner rather than later.

FAQs About Solar Tax Incentives

1. Can I claim both federal and state solar incentives?

Absolutely! In most cases, you can combine multiple incentives to maximize your savings.

2. What happens if I don’t owe enough taxes to use the entire credit?

You can carry the unused portion of the credit forward to future tax years.

3. Do I need to hire a professional to install the system?

Yes, to qualify for most incentives, installation must be done by a licensed professional.

4. Are there income limits to claim the ITC?

No income limits apply. As long as you have tax liability, you can benefit from the credit.

5. Do solar incentives apply to rental properties?

Yes, but only if you own the property and use it for income-generating purposes. In that case, the system may qualify for business energy credits instead.