Federal Solar Tax Credits and Solar Rebates in the United States

There are a number of federal programs designed to encourage the adoption of solar energy in the United States. One of the primary incentives is a federal solar tax credit  also called a solar rebate or incentive.

Federal Solar Tax Credits

Both solar photovoltaic and solar water heating systems can qualify for a 30% federal tax credit on personal taxes. Established by The Energy Policy Act of 2005, this tax credit has been extended beyond the expiration date of December 31, 2016. It will remain at the 30% level through 2017, 2018 and 2019 and then be phased out completely over the following three years, falling to 26% in 2020, 22% in 2021 and to 10% in 2022. And to be eligible, the requirements for solar PV systems only stipulate that construction must have commenced by the deadline, as opposed to installations being grid-connected. With regard to solar thermal systems, they must be in service by the deadline. The credit can be applied against the alternative minimum tax. Initially, the tax credit was capped, but The American Recovery and Reinvestment Act of 2009 removed the maximum credit amount.

How does the tax credit work?

If you install a solar energy system at your home, you can claim a tax credit on qualified expenditures as long as you own and use it as a residence. If the tax credit is more than your tax liability in the year you install the system, you can carry forward the excess amount and use it in the future.

Which types of expenses are covered?

Allowable expenditures include labor and equipment costs. Labor costs for assembly, installation, preparation, and interconnection are covered.

What if I want to install a solar energy system at my vacation property or second home?

There is no primary residency requirement to benefit from the tax credit. Solar energy installations at your second home would also qualify. Even an RV or a boat can qualify as long as they are considered as a second home according to the rules of IRS.

Requirements for Solar Photovoltaic Systems

• There is no upper limit for the credit.


• System installations must be commenced (as opposed to grid-connected) before December 31, 2022.


• Tax credit applies to installations on both principal residences and second homes.


• Installations at rental units do not qualify.


• Tax credit can be used for back-up and/or off-grid systems as long as solar panels are part of the equipment.

Requirements for Solar Thermal (water-heating) Systems

• There is no upper limit for the credit.


• Systems must be in service before December 31, 2022.


• Tax credit applies to installations on both principal residences and second homes.


• The equipment used in the installation must be certified by the Solar Rating Certification Corporation (SRCC) or a comparable entity.


• Tax credit applies to installations on both principal residences and second homes.


• Solar water-heating system must provide at least half of the energy used to heat the water at the property.


• The tax credit cannot be applied to systems designed to heat swimming pools or hot tubs.


• Installations at rental units do not qualify.

Where can I get more information and instructions to apply for the tax credit?

Check out the website of Energy Star for more details on how you can apply for the tax credit.

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