By Jennifer Lubell

The benefits of installing a solar energy system in your home extend beyond your electricity bill – you can save money on your federal taxes as well with solar energy tax rebates.

The Energy Policy Act of 2005 created a solar panel tax credit known as the investment tax credit or ITC, which enables homeowners and businesses to deduct a certain percentage of the cost of their solar panel system from their taxes.

“Using the Section 25D residential ITC, homeowners can apply the credit to their personal income taxes when they purchase their solar system outright and have it installed on their homes. The tax credit is a dollar-for-dollar reduction,” explained Alex Hobson, senior communications manager with the Solar Energy Industries Association (SEIA).

Initially, only systems installed between January 1, 2009 and December 31, 2016 were eligible for the tax credit. However, a 2016 federal spending bill that extended the ITC for five years allows the credit to be used beyond 2016, according to Hobson. The 2017 tax reform legislation signed by President Trump maintains ITC’s current language.  

It’s important to note that the amount of money you can recoup with this tax credit will diminish over time. Through 2019, owners of solar energy systems may qualify for a tax credit that equals 30 percent of the cost of the system (not counting any cash rebates). Starting in 2020, the deduction falls to 26 percent, then 22 percent in 2021. In 2022 and beyond, the tax credit benefit ends for residential solar systems, although business may continue to deduct 10 percent of their solar system costs from their taxes.  

How does this add up in terms of savings? To give a specific estimate, a homeowner that installs a 5.2kW system costing $44,200 can recoup $13,260 using the federal tax credit.

Other opportunities exist to save money on your solar system. Depending on where you live, you might also qualify for a state tax credit, incentive or rebate program. In Arizona for example, homeowners can get a one-time tax credit for buying and installing a solar energy system. The credit is worth either  of the cost of buying and installing your system, or $1,000, whichever is less.

Colorado has several incentive programs, including Energy Smart Colorado, which offers rebates for solar systems in various counties. Oregon offers a Residential Energy Tax Credit program in which homeowners can earn either 50 percent of the total cost of their system or a $1,500 credit each year for 4 years. Credits range from $100 to $6,000.

Hobson advises owners of solar panels to consult with their tax adviser on specific matters regarding use of the ITC and state tax incentives.

“In any significant financial decision, it’s best to fully educate yourself with your options,” she said. “This applies to solar energy. A consumer should go in to their solar transaction feeling confident in their financial decision and understanding the terms of their purchase.”