Using Solar Incentives to Help You Go Solar
Taking the leap into the world of solar can seem financially daunting – but it doesn’t have to be. With the help of federal and state tax credits, you can take advantage of all the benefits solar has to offer while keeping your wallet happy.
There are both federal and state solar incentives that you may be able to take advantage of when you go solar for your home or business. These features can help you earn back money that you invest in your solar system throughout the time you have it. Exact Solar, as an 18+ year old solar installer serving Pennsylvania and New Jersey customers, has a lot of experience with all of these incentives and which ones apply to which projects. This article will help any homeowners or businesses in 2023 who may want to do a solar project understand all the various programs that can subsidize their project and make the economics more feasible to go solar.
Is This Too Good to Be True?
One of the most common objections or concerns about solar is that all of these incentives, which collectively will pay for most of your solar system, seem too good to be true. As a consumer who just learned about solar and wants to become more confident in these various incentives, review our quick summary of each. Visit the third-party links within this blog to become both acclimated and confident in their applicability to your project. Exact Solar’s team can further validate these for your project – start the conversation with us today!
Through our 18 years in service, our team is committed to educating our customers about how solar energy systems work, the latest industry trends, and technology improvements so we can bring the best options to you.
Most Important Solar Incentive: The Federal Solar Tax Credit (ITC)
The Solar Investment Tax Credit, or ITC, is one of the best policies for homeowners interested in solar to leverage. The ITC is a tax credit you can claim on your federal taxes, covering 30% of your solar system installation cost. For example, you can claim a $9,000 credit on a $30,000 solar system or a $18,000 credit on a $60,000 system. If your tax credit exceeds your tax liability, you can carry over any unused amount of tax credit to the next tax year.
To qualify for this credit, you must reside in the United States and own your system – those who lease their systems are not eligible. To claim the tax credit, homeowners simply need to file IRS Form 5695 with their tax return, along with any other relevant tax forms. Here are some tips to help you complete the form:
- In part 1, calculate the credit of the solar tax form
- File your system as “qualified solar electric property costs”
- On line 1, enter your project’s total cost as outlined within your solar contract
- On lines 6a and 6b, complete your calculations
- On line 14, calculate your tax liability limitations using the IRS’s Residential Energy Efficient Property Credit Limit worksheet
- On lines 15 and 16, complete your calculations
- On line 5, enter the exact figure from line 15 on your Schedule 3 (Form 1040)
Once submitted, the credit will be applied to the tax filing season after the year your system was installed and completed. So if your project is installed in May of 2023, you’d receive your tax credit approximately in April 2024. Since everyone’s situation differs, it’s important to meet with your tax professional to see which incentives you’re eligible for. Consulting a tax professional is also essential for businesses and commercial companies since they might be eligible for an even higher tax if they satisfy specific requirements.
Last year, the Inflation Reduction Act extended the ITC for 10 years and fixed the rate at 30%, an increase from the 26% that had been set previously. That announcement was a massive win for the solar industry and customers alike. For more information on the ITC, visit the Department of Energy’s Homeowner’s Guide or read our recent blog post about the ITC.
State-Level Solar Incentives (SRECs)
One of the best benefits of going solar is the Solar Renewable Energy Credits (SRECs) incentive. SRECs allow you to earn additional income from the solar electricity that your home generates. Homeowners can earn one SREC for every 1,000 kilowatt hours (or 1-megawatt hour) of electricity your solar panel system generates. These credits are valuable because utilities and energy suppliers often have to purchase a certain number each year to meet sustainability requirements set by the renewable portfolio standard (RPS) in each state. When companies subjected to these standards do not meet the criteria, they’re met with fines.
In Pennsylvania and New Jersey, SRECs can be “sold” through an online broker system to earn money. SRECTrade and Sol Systems are two of the largest brokers out there, and once you create your online account, it’s easy to sell your SRECs. In NJ, SRECs are fixed at $85/SREC for residential projects and $110/SREC for commercial projects, with additional bonus amounts for municipal or public school projects. In PA, while the SREC amounts are a little bit lower, there isn’t a 15-year limit like in NJ, so PA SREC revenues over the entire 30+ year life of your system could even exceed NJ SREC revenues because of this ability to continue beyond 15 years, as long as the SREC programs remain active.
Least Commonly Understood Solar Incentive: The Federal Accelerated Depreciation Benefit
Most taxpayers who claim the business solar ITC can use an accelerated depreciation schedule, which allows for a more significant depreciation expense in the early years of the life of an asset and effectively reduces the overall solar installation cost. This can be incredibly beneficial to businesses because decreasing costs can increase return on investment and keep paybacks short.
This benefit only applies to commercial projects owned by private businesses with a tax basis. For such projects, the federal government allows the project to be depreciated at an accelerated schedule, including 80% depreciation in the first year. You can visit this website to learn more about this accelerated depreciation for commercial projects. Because this incentive is a tax deduction, not a tax credit, you’ll want to work with your professional accountant to determine your effective tax rate to calculate the cash value of this benefit.
A Special Solar Incentive for PPL Customers In Pennsylvania
For commercial project customers in the PPL utility region (many residents of central and eastern Pennsylvania), there is an additional small project grant that you may be able to qualify for to help you fund your solar journey. Though it’s a more minor incentive than the ones previously mentioned, it adds up. The commercial projects in the PPL region that also get this additional grant have seen some tremendous project economics. You can learn more about PPL’s incentives and rebate opportunities on their website, linked here.
REAP Grants: A Solar Incentive Just for Farmers
For projects on farmland and in rural areas, a great program regulated by the U.S. Department of Agriculture (USDA) called REAP (Rural Energy for America Program) can provide a grant for up to 50% of the project’s overall costs. The program provides guaranteed loan financing and grant funding to agricultural producers and rural small businesses for renewable energy systems if selected. Since this is such a competitive program, there are many requirements that applicants need to meet to be considered for the grant. Qualifying projects must be located in rural areas with populations of 50,000 residents or less and within particular regions – you can check if your business is located in a qualifying location here.
REAP is a program we are asked about often, but it isn’t easy to achieve for solar customers. The program is oversubscribed and is competitively awarded to customers based on their application. However, if applying, you can’t start your project until you’ve been awarded the REAP grant, and it can be a multiyear waiting process. Check out this link to find out more about this program or if your business qualifies.
Ready to Learn More About Solar Incentives and See Which Might Apply for Your Project?
Investing in a solar system for your home or business can be intimidating. Yet, it might be the perfect opportunity with federal and state incentives, local grants, and long-term energy savings. We highly recommend consulting with your tax professional to learn more about how these credit opportunities apply to you.
Our local solar experts are ready to guide you through your solar journey. With over 18 years of experience, you can trust us to educate you and answer any questions, empowering you to make informed decisions. Contact us today to discover how solar can work for you. Mention promo code ‘EXACTSOCIAL’ for a $500 discount on your solar system!