Solar Incentives: Why 2023 Is the Best Year For Government Rebates, Credits, and Exemptions

Congratulations! After doing the research and determining that solar paneling is a good choice for your home, you’ve sifted through three or four bids and chosen a solar contractor that’s right for you. Now, in 2023, you stand to benefit from an extensive array of financial incentives from local, regional, and federal sources that could significantly reduce how much you will have to pay for your solar panel system installation.

Before paying any amount out of pocket, be sure you’re well versed in the options at your disposal, primarily by discussing them with your experienced contractor. And it’s always smart to come prepared to those conversations. Here’s what you need to know to have an informed and productive conversation about solar rebates in 2023.

2023’s Enhanced Federal Programs and Incentives

Many Americans will save thousands of dollars on home renovations when new rebates for a range of energy-efficient upgrades kick in later this year. These rebates are part of a $9 billion federal program passed by Congress in last summer’s Inflation Reduction Act.

These rebates can be combined with existing tax credits and utility offers for heat pumps, EVs, and yes, even solar.

How Much Can You Save?

The size of the rebates will vary based on your household income and where you live, as the program will be administered separately by each state.

• For Lower Income Households: These households are defined as below 80% of an area’s median income, and could claim up to $22,250 to fully cover energy efficiency upgrades.
• For Moderate-Income Households: These households earn between 80% and 150% of area median income, and could get back up to $19,000 in incentives on a $32,000 project.
• For Higher-Income Households: These households could get $7,200 on a home performance retrofit, a combination of $4,000 in rebates and $3,200 in tax credits.

First Steps: Home Energy Audit

To qualify for the new rebate program’s incentives for cutting energy use, homeowners must have a home energy audit. The audit must identify the most significant and cost-effective energy-efficiency improvements, including an estimate of the energy and cost savings of each improvement. Taxpayers can get a $150 tax credit for a $500 audit.

New Tools to Help You Navigate

With the growing complexity of green incentives, new free apps are rushing in to help homeowners sort it all out. For example, Pearl Certification’s Green Door app helps guide homeowners through high-performance renovations, and Rewiring America has an Inflation Reduction Act calculator that lets you plug in your family income and ZIP Code, producing a list of available upfront rebates and tax credits.

State and Local Incentives in 2023

While the federal programs are extensive, don’t forget about state and local options, which can also provide significant savings. For example, states like Arizona, California, and Massachusetts have numerous programs to support renewable energy. Check the DSIRE database for your own state to see what’s in store for you.

To prepare you for some research, let’s take a look at some examples to familiarize you with the best way to assess these credits and rebates and apply them to your own financial situation.

Arizona’s Residential Solar and Wind Energy Systems Tax Credit

With some of the sunniest cities in the country, Arizona has embraced both solar and wind energy technologies. The Arizona Solar Energy Credit is available to individual taxpayers who install a qualifying solar or wind energy device at their Arizona residence. This tax credit allows Arizona homeowners to receive a credit against their personal income tax in the amount of 25% of the cost of a solar or wind energy device, with a maximum allowable limit of $1,000, regardless of the number of energy devices installed.

For example, if your purchase was $4,000, a quarter of that amount, or $1,000, could come back to you in the form of a tax credit. It is important to note that this credit is claimed in the year the system is installed. If the amount of the credit exceeds a taxpayer’s liability in a given year, the unused portion of the credit may be carried forward for up to five years.

However, taxpayers who lease a system or enter into a power purchase agreement with a third party who owns the system are not eligible to receive this credit (see ITR 13-4 for more information).

Eligible renewable technologies for this credit include:

• Solar domestic water heating systems
• Solar swimming pool and spa heating systems
• Photovoltaic systems
• Photovoltaic phones and street lights
• Passive solar building systems (Trombe walls, thermal mass, etc.)
• Solar daylighting systems (excluding conventional skylights)
• Wind turbines
• Pumps powered by wind

In addition to the Solar Energy Credit, Arizona also offers other state incentives for solar power installation, including the Solar Equipment Sales Tax Exemption and the Energy Equipment Property Tax Exemption.

Check out the fine print at DSIRE’s profile for the Residential Solar and Wind Energy Systems Tax Credit and learn more about Arizona solar.

California’s Property Tax Exclusion for Solar Energy Systems

California ranks as the top state in the nation for solar energy, and the numerous rebates and incentives available to homeowners are contributing factors to this ranking. In addition to the 45% drop in the price of solar panels over the last five years, as reported by the Solar Energy Industries Association, the state’s Solar Energy System Property Tax Exclusion offers significant savings to homeowners in terms of property taxes.

This tax incentive is in the form of a new construction exclusion, not an exemption. This means that the installation of a qualifying solar energy system will not result in either an increase or a decrease in the assessment of the existing property. Generally, when something of value is physically added to real property, the addition is assessed at current market value and this value is added to the existing base year value of the real property. However, when an active solar energy system is installed, this addition is not assessed, meaning that the existing assessment of the property will not increase due to the installation of the system. Some active solar energy systems may even be eligible for exclusion from reassessment.

As of the extension effective June 20, 2014, the sunset date for the active solar energy system new construction exclusion was set through the 2023-24 fiscal year. As a result, this beneficial program is now scheduled to sunset on January 1, 2025.

Active solar energy systems eligible for this program can be used for:

• Domestic, recreational, therapeutic, or service water heating
• Space conditioning
• Production of electricity
• Process heat
• Solar mechanical energy

However, there are exclusions to the program, which means the following systems are not eligible for the property tax exclusion:

• Solar swimming pool heaters
• Hot tub heaters
• Passive energy systems
• Wind energy systems

Other state incentives for solar power installation include the Self-Generation Incentive Program and Single-Family Affordable Solar Housing. Local municipalities in California are also providing incentives to their residents, such as San Francisco’s GoSolarSF program and Sacramento’s SMUD solar rebate program.

Check out all the California solar incentives at DSIRE and learn more about California solar.

Massachusetts’ Residential New Construction Program

Since 2014, home builders in Massachusetts could receive up to $4,500 in financial incentives if their constructed home met energy-efficient features that made it “more efficient than the typical home in Massachusetts.” There are three tiers of “improvement” that dictate how much the home builders will receive in incentives:

• Tier I (15 percent improvement): $750
• Tier II (30 percent improvement): $1,250
• Tier III (45 percent improvement): $4,500

Another incentive? Homes built with energy-efficient features use up to 30% less energy. There are other state incentives, including the Solar Massachusetts Renewable Target Program.

Check out the fine print at DSIRE’s profile for the Residential New Construction Program and learn more about Massachusetts solar.

Final Note

There are hundreds of incentives spread over each and every single state, so you should definitely take a moment to scroll through yours. But, as we have often shared, it’s wise not to go at it alone. Share what you find with your contractor (or a friend or a family member). And ask questions. Lots of questions. There are requirements and bureaucratic obstacles built into these incentives, just like in any other program. Consult those with experience to be sure you get the most out of these programs and that you’re putting in as little as possible of your own hard-earned cash.