Are There Solar Energy Tax Incentives in My State?

Solar incentives vary widely from state to state, and the benefits available to you can depend on whether you own a home or run a business, which utility serves your property, and how you finance your solar system. Some states offer tax credits, sales or property tax exemptions, or programs that pay solar owners for renewable energy certificates. Others rely more on utility programs and offer fewer incentives to property owners. With federal residential solar incentives changing, understanding the state and local programs available where you live has become even more important.

For legal help evaluating a solar project’s incentives, contracts, tax issues, or utility requirements, speak with a tax lawyer.

What Happened to the Federal Solar Incentives?

The Residential Clean Energy Credit was a federal program that offered homeowners an incentive for solar installation. Depending on when the system was installed, the federal solar tax credit provided homeowners with a 26-30% credit.

Installations made from 2016 through the end of 2025 qualified. Solar panels installed on existing or new construction homes qualified for the federal solar investment tax credit. The credit covered more than just the panels. Homeowners could qualify for the credit for qualifying expenses related to solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology.

Expenditures that are made on or after January 1, 2026, do not qualify for the credit.

Types of State Solar Incentives

With federal residential incentives ending, state and local incentives have become more important. These rebates, tax exemptions, and incentives can offset solar installation costs. Each state has its own programs, so the benefits homeowners can receive for their solar equipment vary.

State Solar Tax Credits

A state solar tax credit can reduce the amount of state income tax you owe after installing a qualifying solar energy system. The credit is generally calculated based on the project cost or another formula established by state law.

The details vary considerably from one state to another. A state may set a maximum credit, limit the types of properties or systems that qualify, impose income or ownership requirements, or allow unused credits to carry forward into future tax years. Some states also require specific forms or documentation when you claim the credit.

A tax credit also works differently from a solar rebate. A rebate generally reduces the project’s cost through a payment or incentive associated with the installation. By comparison, a tax credit is claimed through the taxpayer’s state tax return and reduces qualifying tax liability.

The same solar project may also qualify for other incentives, including a residential clean energy credit, solar renewable energy credits, utility incentives, or property and sales tax exemptions, depending on the property’s location.

New York offers a state personal income tax credit for qualifying residential solar energy systems. Hawaii’s Renewable Energy Technologies Income Tax Credit allows individuals or corporations to claim an income tax credit. New Mexico also has a New Solar Market Development Tax Credit.

Solar Renewable Energy Certificates and Renewable Energy Credits (SRECs)

A Renewable Energy Certificate (REC) represents the environmental attributes associated with one megawatt-hour of renewable electricity. An SREC, or Solar Renewable Energy Certificate, is a solar-specific type of REC. In New Jersey, for example, an SREC is generated when a solar electric system produces 1 megawatt-hour, or 1,000 kilowatt-hours, of electricity.

Those certificates can have monetary value because utilities and other entities may need them to demonstrate compliance with state renewable energy requirements. A property owner with a qualifying solar energy system may be able to sell the certificates or participate in a state program that provides compensation for them.

New Jersey’s current solar programs include tradable SRECs and SREC-IIs that can be sold to utilities at values set through the state’s incentive programs. Michigan’s Michigan Renewable Energy Certification System (MIRECS) tracks renewable generation and creates RECs.

Solar Property Tax Exemptions

Adding a solar energy system can affect how a property is assessed for tax purposes. A property tax exemption or exclusion can keep some or all of the value associated with the system out of the property’s taxable value. That can reduce the property tax impact of installing solar, although it does not necessarily mean the entire property becomes exempt from taxation.

Some states exempt the solar equipment itself, while others exclude some or all of the added value from the property’s assessment. The rules may also differ based on the type or size of the system, whether the property is residential or commercial, and how the system is owned.

In some states, the property owner may also need to apply for the exemption or provide documentation to the local assessor. North Carolina provides a property tax exclusion for qualifying solar energy electric systems.

Sales Tax Exemptions

A sales tax exemption can reduce the upfront cost of installing solar by removing qualifying equipment from the sales tax that would otherwise apply to the purchase. You can claim this benefit when you purchase the solar energy system.

The details vary by state. Some exemptions apply specifically to solar equipment, while others may extend to certain installation costs or related components. A state may also impose different requirements depending on whether the system is installed on a home, business, or other property. Local sales taxes can add another layer, so property owners should confirm exactly which charges are exempt before calculating their expected savings.

Iowa exempts qualifying solar energy equipment from sales tax. The Iowa Department of Revenue defines qualifying equipment to include items such as solar panels, inverters, solar roof tiles or shingles, and devices used to transmit converted solar energy to a storage point or point of use.

Utility-Based Incentives

Depending on the utility company and the applicable program, you may receive a credit for electricity your system generates or performance-based incentives (PBI).

Net metering is one of the most familiar arrangements. When a solar system produces more electricity than the property is using, the excess can flow back to the utility grid. The customer then receives a credit based on the electricity sent to the grid. Depending on the program, those credits may offset electricity used at another time. Net billing works differently because the electricity exported to the grid is generally credited at a specified rate rather than simply offsetting electricity consumption on a kilowatt-hour-for-kilowatt-hour (kWh) basis.

The Wisconsin Public Service Commission allows customer-owned distributed generation to connect to the electric grid, but customers must work with the electric provider serving the property and follow the applicable interconnection procedures.

Utility Rules

State law may establish solar incentives, but the utility serving your property determines how you connect to the grid, how it credits excess electricity, what system-size limits apply, and which tariff governs your account.

That means two property owners in the same state can have different solar economics if they receive electricity from different utilities or fall under different tariffs.

States with Limited Incentives

Not every state offers homeowners and businesses many financial incentives for going solar. Alabama, Mississippi, South Dakota, Tennessee, and Wyoming are examples of states where solar owners may find fewer state-level financial incentives than property owners in states with established tax credits, SREC programs, or solar rebates.

That does not mean solar is unavailable in these states. It means property owners may have fewer financial programs to offset installation costs, making utility rates, electricity savings, financing terms, and the federal rules that still apply to qualifying projects especially important.

Commercial Solar Incentives

Businesses considering solar power can access many of the same energy savings available elsewhere, but the financial picture can get more complicated as project size, ownership structure, and tax treatment come into play.

A commercial solar project may qualify for state tax incentives, utility rebates, property or sales tax benefits, renewable energy certificates, and other programs designed to encourage businesses to generate renewable electricity.

The project’s size and structure can affect which incentives are available and how they are claimed. A business may also need to consider whether it owns the system, finances it through a third party, or enters into a power purchase agreement. Those arrangements can affect who receives tax benefits, rebates, renewable energy certificates, and other project-related financial benefits.

New Mexico, for example, offers a New Solar Market Development Tax Credit for qualifying photovoltaic or solar thermal systems installed at a business or other eligible property. Minnesota provides another example of how commercial-scale solar incentives can take a different form.

How To Claim State Solar Incentives

For residential homeowners going solar, the first step is identifying applicable state and local incentives. Confirm the applicable utility company requirements. Verify if any programs require pre-approval. Find a reputable company to perform the installation. The solar company should arrange for installation by obtaining the necessary permits.

Keep copies of all contracts, invoices, permits, certifications, and utility documentation. Complete any required REC/SREC registration or assignment. File the appropriate state tax forms or exemption applications.

Legal and Financial Issues Property Owners Should Review Before Installing Solar

Before installing a solar system, homeowners should consider the potential legal and financial issues that come with installation. The first is your incentive eligibility. Each program has requirements you must meet to qualify. Confirm you qualify before signing a contract and installing the panels.

Once you find a company to install a solar system, confirm who will own it. Some systems require the homeowner to purchase the system. Other agreements are actually a lease. Ask the company who owns the renewable energy credits (RECs). Does the contract account for their value?

Talk to a Lawyer

State solar incentives can substantially affect the cost and long-term value of a residential or commercial solar project. An attorney can help you identify the rules that apply to your project, review agreements with installers or solar companies, and address potential tax, property, and regulatory issues before they become expensive problems.

Use the Super Lawyers directory to find a tax lawyer who can help you understand the rules that apply to your property.