Enter your zip to
find local pros.
Solar Resources

Understanding the 2021 Solar Tax Credit

As you look around your neighborhood, you might notice that solar panels are becoming a more common sight. Homeowners are increasingly looking look toward eco-friendly building options. While once considered a luxury, green energy alternatives are more affordable than ever thanks to solar tax credits.

While local solar tax credits can vary from state-to-state, the federal solar tax credit provides assistance to homeowners throughout the country looking to install and operate solar panels. This credit can be claimed on federal income tax filings to offset a cost percentage on a solar photovoltaic (PV) system in 2021.

Table of Contents

What Does the 2021 Tax Credit Cover?

The 2021 solar tax credit provides a 26% credit for systems installed in 2020 through 2022, and 22% for systems installed in 2023. Systems installed prior to Dec. 31, 2019, were eligible for a 30% credit.

When filing your next tax return, homeowners will be able to include the following expenses:

  • Solar PV panels or PV cells used to power an attic fan (but not the fan itself)
  • Labor costs for preparation, assembly, and/or installation
  • Permitting fees, inspection costs, and developer fees
  • Equipment such as wiring, inverters, and mounting hardware
  • Energy storage devices that are charged exclusively by the associated panels
  • Sales taxes on eligible expenses

While some local or state solar tax credits might place limits on the amount that can be claimed, three is no such maximum for the 2021 solar tax credit.

home solar panels

Who is Eligible?

The federal solar tax credit is a wide-reaching program that is available to a large number of homeowners who recently installed solar devices. However, there are still some requirements that must be met to be eligible, including the following criteria.

  • Your solar PV system was/will be installed between Jan. 1, 2006, and Dec. 31, 2023.
  • The system must be placed in service during the tax year it is claimed and generate electricity for a home.
  • The system is located at your primary or secondary residence, or at an off-site community solar project (restrictions apply).
  • You own the system through either cash purchasing or financing.
  • The system is new or being used for the first time, and only being claimed on the original installation of the equipment.
If you do not expect to owe taxes in the year of installation, or if your credit exceeds the income tax due for that year, you can carry it over to the following tax year.

How Long is the Federal Solar Tax Credit Valid?

The federal solar tax credit will expire starting in 2024, unless Congress opts to renew it once again. The program was originally launched in 2005, and has been renewed several times due to its popularity and the emerging use of solar energy.

Other Solar Tax Credit Options

If you are looking to offset some of the costs associated with your solar panel installation project, the options do not end at the federal solar tax credit. There are numerous credits, rebates, and incentives available to help you go solar.

The best place to start is the Database of State Incentives for Renewable Energy (DSIRE). This database provides an extensive, searchable summary of renewable energy and energy efficiency incentives broken out by state.

Some of the general types of incentives available to homeowners include:

  • Solar loan programs. Offered at the federal and state level to purchase solar panel systems and equipment.
  • Personal solar tax incentives. Incentives such as tax credits and deductions reduce the upfront cost of purchasing and installing a residential solar panel system if you decide to buy.
  • Property solar tax incentives. Adding a solar panel system to your property may increase the value of your home, which could mean higher property taxes. Solar property tax incentives exclude or reduce this added value for taxation purposes.
  • Solar rebate programs. Rebate programs for solar panels—such as cash incentives—are available from states, local governments and utilities in varying amounts.

Your local utility company may also offer you a credit if your grid-connected system produces more energy than you use. You can actually sell that extra energy back to the grid. This is called net metering or net excess generation (NEG).

Next Steps for Your Solar Project

From the 2021 federal solar tax credit to state incentives and rebate programs, there are likely dozens of available opportunities to help with the costs of your solar panel project. The pros at Modernize are ready to connect you with our network of solar professionals to help you get started.

Find today's best prices for your
home improvement project.