Federal incentive programs for solar

Updated for 2016: Increasing interest in the renewable energy sector has brought some noteworthy gains in the number and size of financial incentives offered by the federal government. The programs covered below pertain most directly to residential solar energy systems. For information on commercial systems, consult our commercial federal incentive page

In October 2008, President Bush signed into law the The Energy Improvement and Extension Act of 2008. Among other things, the act extended the corporate and individual Investment Tax Credit, through the end of 2016. Update for 2016: 30% Federal Tax Credit Extended by Congress until 2020. Notably, the act also removed the cap that had previously prevented homeowners from taking more than a $2,000 credit when purchasing a solar PV system. The $2,000 cap remained in place for solar thermal systems.

In February of 2009, the American Recovery and Reinvestment Act was passed. This piece of legislation removed the dollar-amount cap for solar thermal systems (and also paved the way for commercial systems installed in 2009 and 2010 to receive a grant instead of the 30-percent tax credit, outlined below).

In addition to these federal programs, an increasing number of state governments are establishing incentives for solar -- and other forms of renewable energy. See this interactive map to get an idea of what's available in your state. 

Personal Investment Tax Credit (ITC)

In brief terms, homeowners who install a solar energy system -- either solar PV panels or a solar thermal system -- may take an income tax credit worth up to 30 percent of installed costs. (Solar pool or hot tub-heating systems are, however, excluded from the credit.)

To take an example, a typical 6 kW system may cost around $22,000. In practice, then, ITC would save you $6,000 -- effectively reducing your costs by a third. Add to this some state- or utility-sponsored incentives, and you may be able to make considerable reductions in installed costs. 
What else do you need to know? Solar thermal systems must be certified by the Solar Rating and Certification Corporation (SRCC) or an equivalent state-recognized entity. Solar thermal systems must provide at least half of the total energy used to heat water in for the associated expenditures to be eligible for the tax credit. Excess credit may be carried to succeeding tax year.


Related reading:


Federal Tax Credits   Energy Efficient Mortgages