NY solar incentives and surging electricity rates make New York City one of the best solar markets in the country. Something we love about our work is informing homeowners about these valuable city, state and federal offerings that make installing solar panels incredibly affordable.
These NYC solar tax credits and rebates can cover 75% or more of the gross cost of most residential solar projects, which is a major advantage of installing solar. We’ve broken them down for you here.
Importance of Solar Incentives for NYC Homeowners
Although investing in solar becomes a great value over time, it can come with a sizable upfront price tag. Government tax incentives reduce the net cost of your solar system, making it more affordable and accessible.
For NYC homeowners, tax incentives can cover a major portion of the cost of a solar system. Not only that, but financing options help you pay your system off over time. By combining incentives and financing, solar can become a reality for many New Yorkers.
New York State Solar Income Tax Credit
What is the New York State Solar Income Tax Credit?
One of the best NY solar incentives to take advantage of is the New York State Solar Income Tax Credit. This credit, also known as the NYS Solar Energy System Equipment Credit, allows NYS homeowners to claim 25% of their solar system costs – up to $5,000 – as a credit on their state income taxes.
This credit, like the federal solar income tax credit, is non-refundable, meaning you cannot use it to increase your refund from the state government. However, if the credit exceeds your tax liability for a single year, the credit can be carried over for up to five tax years.
Eligibility for the New York State Solar Income Tax Credit
You are eligible to claim this credit if:
- You purchased solar panels or other solar energy equipment for your home
- The equipment uses solar radiation to produce energy for residential use
- The solar equipment is installed and used at your primary residence in New York State
How to Claim the New York State Solar Income Tax Credit
To claim this credit, you will need to file Form IT-255 “Claim for Solar Energy System Equipment Credit” with your New York State income taxes. You can get more information and download Form IT-255 here.
New York State Solar Rebate
What is the NYS Solar Rebate?
Through the NY-Sun Program, the New York State Energy Research and Development Authority (or NYSERDA) provides cash incentives to build solar in different regions of the state. This incentive is a rebate that reduces the upfront contract price of New York State residential solar projects.
The rebate for NYC residential projects is currently $.20 per Watt of solar installed. Note that the rebate amount declines over time based on how much solar is installed in each region of the state.
In addition to the rebate, NYSERDA also provides a number of solar panel financing options for New York residents looking to invest in solar for their home.
How to Apply for the NYS Solar Rebate
This rebate differs from the other NY solar incentives we’ve listed here in that it is paid directly to the installer, then passed on in full to the customer. In order to secure this rebate, or finance your solar installation through this program, you will need to work with a NYSERDA-approved participating installer. Brooklyn SolarWorks is a Gold Quality NYSERDA contractor!
Learn about the rebates and financing options available to you through this program:
New York City Solar Property Tax Abatement
What is the NYC Solar Property Tax Abatement?
The NYC Property Tax Abatement for solar allows NYC homeowners to claim 30% of solar system costs as a property tax abatement with the NYC Department of Finance. It is divided into annual installments over a four year cycle, not to exceed any one year’s property tax liability.
How to Apply for the NYC Solar Property Tax Abatement
Brooklyn SolarWorks claims the PTA on your behalf during the permitting process. Building permits signed off by March 15th will have their property tax abatements initiated the following July.
For more information, you can view the DOB’s Form PT4: Property Tax Abatement for Solar Electric Generating System.
NYS Historic Homeownership Rehabilitation Tax Credit
What is the NYS Historic Homeownership Rehabilitation tax credit?
The New York State Historic Homeowner Tax Credit Program is little known, but very valuable. Through this program, the state is effectively paying eligible homeowners to optimize their homes through improvements like solar power.
The credit covers 20% of qualified rehabilitation costs of owner-occupied historic houses, up to a credit value of $50,000.
Eligibility for the NYS Historic Homeownership Rehabilitation Credit
Note that not all NYC homes can qualify for this credit. NY State Historic Tax Credits only apply to certain districts in the city as designated by the NYC Landmarks Preservation Commission.
Want to know if your home qualifies?
In addition to living in a designated historic community, your solar panels must be installed on the home that you owned and resided in during the specified tax year in order to qualify.
How to Claim the Historic Homeownership Rehabilitation Tax Credit
To claim this credit, you’ll need to file Form IT-237, “Claim for Historic Homeownership Rehabilitation Credit” with your New York State taxes. Because qualification for this credit can be trickier, BSW can provide support in filing for it.
For more information about the NY State Historic Tax Credit, you can view instructions and Form IT-237.
Net Metering in New York City
Beyond tax incentives, one of the other great benefits of going solar in NYC is net metering in New York. Net metering is a billing mechanism that allows you to store your solar energy as a retail energy credit to be used at a later date.
In other words, your solar system will likely produce more energy than your home needs. That excess energy is sent back into the grid, and Con Edison compensates you for it in the form of retail energy credits that are applied to your future bills. So even though solar battery installations aren’t permitted in NYC yet, you can still utilize the extra solar energy your system produces.
Because of net metering, many of our customers reduce and even eliminate their monthly electric bills.
Federal Solar Tax Credit
Another great incentive to take advantage of is the solar Investment Tax Credit (ITC), or federal solar income tax credit. The ITC allows homeowners to deduct up to 30% of their solar system installation costs from their federal income tax. If the credit exceeds a taxpayer’s single year tax liability, they can divide the credit over multiple years.
Most recently, the 30% federal tax credit was extended in August 2022 for an additional 10 years. The credit will drop to 26% in 2033, then to 22% for residential installations in 2034.
To claim this credit, you’ll need to fill out IRS Form 5695 for Residential Energy Credits when filing your federal taxes.
Choosing the Best Solar Installer for Your Home
The solar installer you choose to work with is a big factor in determining your experience as a customer, as well as the solar energy system you end up with and how much it’ll cost. This is especially true in a place like New York City, where there are inherent system design challenges and lots of regulatory hoops to jump through.
That’s where we come in. We’re a local solar installer in NYC that’s been designing unique solar systems and navigating the complex permitting process since 2015. Working with a local installer means you’ll benefit from timely, personalized service and a deep knowledge NYC regulations and incentives (and you’ll be supporting a local business too).
Take Advantage of NYC’s Incentives and Go Solar Today
Allow us to do the math for you: if your project qualifies for all of the incentives listed above, up to 95% of your costs are covered. Even if you’re not eligible for all of these, the majority of your costs can still be covered – in addition to the savings you’ll be receiving on bills from the utility company. And above all, solar systems increase overall NYC property values by approximately 5.4%.
If you’re seriously considering solar for your home, act quickly so that you can yield the full solar incentives while they last. (Plus, we think you deserve the extra bucks for prioritizing your environmental impact with renewable energy.)
Get started today to chat about which NY solar incentives you could be eligible for:
Disclaimer: Brooklyn SolarWorks are not financial professionals. As much as we’ll always strive to provide our customers with the most accurate information regarding solar tax incentives, we are not tax experts. Please consult your tax advisor for guidance on filing for credits with respect to your specific circumstances.
New York City has some of the best solar tax incentive offerings in the country, reducing the cost of most solar projects by over 75%. One of these tax benefits is the NYC Property Tax Abatement, available for property owners within the five boroughs.
Read to learn more about this valuable incentive and how to take advantage of it when you go solar in NYC.
What is the NYC Solar Property Tax Abatement?
NYC’s Property Tax Abatement for Solar is an incentive unique to the five boroughs, meant to encourage the adoption of solar energy throughout the city.
NYC’s PTA for solar covers 30% of your solar panel installation costs. It reduces your property tax bill from the New York City Department of Finance incrementally for 4 consecutive years. New Yorkers who install solar electric systems on both residential and commercial properties that they own can claim this abatement.
To be clear, this is not a tax exemption. This is a tax abatement, which lowers the amount of property taxes you owe by applying a credit (as opposed to reducing the property’s assessed value). The amount of the abatement is based on total installation costs, which includes the costs of solar PV equipment and labor.
How does the NYC Property Tax Abatement relate to solar?
NYC’s Solar Property Tax Abatement program was implemented to help support and incentivize solar installations in the city. This incentive was established in 2007 as part of Mayor Bloomberg’s PlaNYC initiative to create a more sustainable city.
Who is eligible for the Solar Property Tax Abatement?
Property owners who install solar on their property anywhere within the five boroughs are eligible to claim the solar PTA. This includes condo and co-op owners, and can apply to historic and landmark buildings as well.
Will it affect my eligibility for other solar tax incentives?
It’s important to note that claiming the NYC Solar PTA does not affect solar owners’ eligibility for other incentives. In addition to the 30% Property Tax Abatement, NYC residents who install solar can also claim:
- 30% Federal Income Tax Credit
- $5,000 New York State Solar Income Tax Credit
- $0.20 per Watt rebate from NYSERDA (deducted from upfront contract price)
- 20% Historic Homeownership Rehabilitation Credit (depending on your location)
What installation costs are eligible for the solar property tax abatement?
All costs involved with installing a solar electric generating system are eligible for the property tax abatement. This includes:
- Solar PV equipment
- Labor costs, including system design and installation
- Battery storage (including storage retrofits to existing solar PV systems)
Any applicable rebates (like the NYS Solar Rebate) must be deducted from the total project cost before applying the abatement.
How to File for the NYC Solar Property Tax Abatement
Typically, you’d file for solar tax credits on your own when you do your federal and state tax returns. However, the NYC PTA for solar is different – when you go solar with us, we’ll file for the abatement on your behalf with the New York City Department of Buildings during the permitting process.
When is the deadline to file?
The Department of Buildings determines eligibility for the abatement, but the Department of Finance administers it. New York’s fiscal year for property taxes runs from July 1 to June 30. Applications must be received by March 15th in order for the abatement to take effect within the same calendar year.
Although no action is required on your part, you can take a look at the Department of Buildings’s Form PTA4 if you’re interested in seeing what information will be filed.
Get Started with Solar to Claim Your Property Tax Abatement
New York City’s Solar Property Tax Abatement is an incredibly valuable incentive for property owners to install solar, reducing your project costs by 30%. When combined with other incentives, your solar costs could be covered by over 75%! Find out if your home is right for solar today:
As we start the new year, we look forward to finding ways to improve and enrich our lives. In recent years, New Yorkers have increasingly been adopting sustainable lifestyle alternatives, such as purchasing an electric vehicle. One resolution that NYC homeowners are making is energy efficient home improvements.
Facing the reality of climate change and ever-rising energy costs, improving your home’s energy efficiency is one of the best ways to save money on bills, add value to your home, and reduce your personal carbon footprint!
What are energy efficient home improvements?
Energy efficient home improvements can be any type of home renovation or upgrade that helps improve indoor air quality, regulate indoor temperatures, lower energy usage, and overall increase comfort in your home.
A few examples of energy efficient improvements include: upgrading or adding insulation, professionally sealing your home, and installing solar panels. Installing solar panels and converting to a clean power source not only lowers monthly ConEd bills but also increases buyer interest in your market.
Want to make your NYC home more energy efficient? Schedule a free consultation today and learn how you can switch to solar for $0 down!
Why are energy efficient home improvements important?
Energy efficient homes in general have been gaining popularity with homebuyers within the last few years. This means that when people are looking into purchasing a home, one thing that they look for and prefer is a home that is more sustainable. An energy efficient home not only raises your home’s value, it also saves money on monthly bills and creates a more comfortable indoor environment.
How can I benefit from energy efficient home improvements?
Energy efficient home improvements have a lot of advantages for you and your home. Here are a few ways you can benefit from creating a more sustainable home:
- Save money on monthly energy bills
- Reduce environmental impact
- Increase the value of your home
- Improve indoor air quality
- Get tax credits from the IRS to help install energy efficient home improvements
What tax credits are available for energy efficient home improvements?
2023 is the year that the United States is rolling out the federal climate legislation included in the Inflation Reduction Act (IRA). Tax credits and rebates are now available for businesses and individuals who are aiming to reduce their carbon footprints with clean energy and all-electric upgrades. Some of these incentives include:
- 30% federal tax credit for installing residential solar
- 30% federal tax credit, up to $2,000, for installing a heat pump
- Up to $7,500 rebate for purchasing an electric vehicle, depending on make and model
The IRA is making the switch to renewable energy more affordable and will hopefully ensure a more stable economy and environment!
6 Ways to Make Energy Efficient Home Improvements in NYC
Professionally Seal Your Home
Air leaks in homes tend to form around windows, doors, and light fixtures. These air leaks create heat loss and energy waste in homes and take part in utility bill increases. The typical home loses more than 25% of its heat through windows.
To help seal your home, investing in energy-efficient windows (and doors) with an Energy Star® label will boost your home’s energy efficiency. Adding storm windows can also be a lower-cost alternative as well.
Upgrade Your Appliances
After sealing your home, upgrading old heating, ventilating, and air conditioning units (HVAC system) to energy-efficient appliances is a great way to improve your home’s energy efficiency. When shopping for new appliances, look for the Energy Star® Label. This means the appliances have met the U.S. Environmental Protection Agency’s energy-saving standards.
Upgrading to more energy-efficient light bulbs can also help your home by using up to 90% less energy than a standard light bulb (and they can last up to 15 times longer too).
Additional Home Insulation
Insulation creates an optimal thermal boundary between your home and the outdoors. Upgrading your attic insulation or wall insulation will help keep your home’s temperature regulated all year round and save you money on monthly energy bills.
Switch to an Electric Heat Pump Water Heater
Water heating is about 15% to 25% of annual energy usage in homes. Making the switch to an electric heat pump water heater can save you an average of $350 on energy bills annually, whereas (according to Energy Star) tankless water heaters only give homeowners about $20 in annual savings. After making the switch, you can now use your hot water with more peace of mind.
Upgrade to a Smart Thermostat
Smart thermostats are programmable and have the ability to learn your home’s temperature preferences. This is very helpful in saving energy when no one is home. Also, having smart devices installed in your home also raises its value.
Install Solar Panels
Switching from natural gas, and other nonrenewable fossil fuels, to solar power helps homeowners reduce their carbon footprints and become more independent from their local utility companies. Interestingly, solar panels also have a cooling effect on your home by preventing sunlight from directly hitting your roof.
Electric home appliances and solar panels go hand in hand – powering your electric hot water heaters, heat pumps, and electric vehicles with solar energy gives you an even greater bang for your buck. Investing in solar energy is a great way to reduce energy bills, create more value for your home, and increase sustainability in your home.
Want to know if your brownstone can switch to solar? Schedule a free consultation today.
Start Making Energy Efficient Upgrades to Your NYC Home Today
With the continuous rise in ConEd bills and NYC homeowners becoming more conscious of their environmental impact, energy efficient home improvements are more important now than ever before!
Ready to start your energy efficient home renovation and raise the value of your home? Schedule a free consultation today to find out how much you can save with solar.
Signed into law by President Joe Biden on August 16th, the Inflation Reduction Act is a huge win for the planet and the renewable energy industry. Here’s what this landmark climate bill means for the future of clean energy in the U.S.
Background of the 2022 Climate Bill
Climate action was a major component of President Biden and Vice President Kamala Harris’ campaign platform. Originally, the White House wanted to include climate provisions in what was called the Build Back Better Act, but this legislation failed to progress through Congress.
Senate Democrats then set out to pass Build Back Better in pieces, to cover priority issues like healthcare, tax reform, and fighting global warming. Sen. Joe Manchin and Sen. Kyrsten Sinema, the Senate’s two swing votes, presented significant obstacles to passing any reform in these areas. In July, things looked grim for climate action when Sen. Manchin announced that he would not be supporting any new legislation for renewables and climate change.
But after months of negotiations between Senate Majority Leader Chuck Schumer and Sen. Manchin, the Inflation Reduction Act (IRA) was proposed – a budget package aimed at curbing inflation, reducing healthcare costs, reforming tax code, and investing in clean energy. After an amendment by Sen. Sinema, the bill passed the Senate vote and the House of Representatives’ vote along party lines.
This sweeping budget bill ultimately invests a historic $369 billion in clean energy and fighting climate change.
What is in the new climate bill?
The Inflation Reduction Act of 2022 includes $369 billion in climate-related investments – the largest federal investment in renewable energy in the history of the United States.
The bill will use billions of dollars in tax incentives to boost the adoption of clean energy and energy efficient technologies, with the goal of reducing greenhouse gas emissions by 40% by 2030.
Here’s what’s covered by the new tax incentives.
The climate package invests billions of dollars into expanding the manufacturing and adoption of renewable energy. It provides production and investment tax credits to ramp up U.S. manufacturing of solar panels, wind turbines, batteries, and electric vehicles.
The bill also provides tax credits for consumers who invest in clean tech, including rooftop solar! More on this below.
The bill includes a $4,000 tax credit for lower and middle income individuals to purchase used electric cars, and a $7,500 tax credit for new vehicles.
Heat Pumps, Electric Water Heaters, and Other Clean Tech
The package provides tax credits to consumers who add clean technologies to their houses with the goal of helping the American people reduce their energy costs and the use of fossil fuels. These include heat pumps, electric water heaters, and electric HVAC.
Plus, there will be additional rebates and grants for low-income households and affordable housing to make energy efficient upgrades.
What does this mean for the Federal Solar Income Tax Credit?
We’re excited to say that the Inflation Reduction Act includes an extension and expansion of the Solar Investment Tax Credit! The ITC, or Federal Solar Tax Credit, has been instrumental in the growth of the solar industry since its inception in 2005.
When it was originally passed in 2005, the federal tax credit covered 30% of the cost of a home solar installation. However, it’s seen a decline over the years: it was at 26% this year, and was set to drop to 22% in 2023 before going away completely in 2024.
Luckily, this new climate bill has restored the ITC at 30% and extended it for 10 more years. It’s also retroactive, applying to any installation that occurred after December 31, 2021.
This is huge news: any residential solar installation that has taken place in 2022 or takes place over the next decade is now eligible to get 30% of their costs back on their income taxes.
What does this mean for New Yorkers looking to go solar?
The 30% Federal Tax Credit will make it that much easier for homeowners across the country to switch to solar power. But for homeowners in New York City, that’s not all!
New York City is home to some of the richest solar incentive offerings in the country. This means that New Yorkers going solar can now claim the new 30% tax credit on top of the many NY solar incentives provided by the city and state, too. As a result, the average solar installation in NYC could see its costs reduced by up to 70%!
Now’s the Time to Go Solar
Needless to say, it’s an exciting time for solar energy. With the passing of this historic legislation, the federal government is giving clean energy the endorsement that so many activists and industry leaders have been fighting for. Clean energy is the future – join us!
With the new 30% credit available now, we’re expecting to see a huge uptick in demand for solar in NYC.
Get ahead of the rush and secure your tax credit now. Schedule a free consultation today!
Not only does going solar benefit the planet, it benefits your wallet too. It will drastically reduce your electric bill, and you can take advantage of some of the best solar tax credits in the country as a New Yorker.
We want to make sure our customers understand the entire solar panel installation process, so that they can get the savings and credit they deserve for switching to clean energy. That’s why we believe it’s important that we let our customers know what to expect, even after the installation. We’re here for you and your new flat roof solar system!
Read on for what you can expect in the weeks and months post solar panel installation.
What happens after your solar panels are installed?
The Brooklyn SolarWorks crew has just left your home after completing your solar installation. You might be thinking: what’s next?
The next step in the solar process is receiving final approval from the various entities that issued permits for the installation. This involves inspections and a meter swap, all of which Brooklyn SolarWorks will schedule and facilitate – all you need to do is grant us access to your home on the scheduled dates.
The Department of Buildings requires that each installation is inspected to ensure compliance with building and electrical codes. In this inspection, a representative will check over your installer’s work to make sure, for example, that the panels were mounted securely and that the electrical wiring was done correctly.
Once your solar panel system is installed, Con Edison will also pay a visit to your home to do a final inspection and swap out your old meter for a net meter. This device enables net metering to take place, ensuring that you receive the proper credit for the amount of energy your system exports to the grid.
Once Con Edison issues a final acceptance letter, your system will be given permission to operate (PTO). This means the system is registered in their billing system and it’s ready to be activated in your home’s electrical system. This is done by turning on the AC disconnect switch or dedicated solar breaker in your electrical panel. We’ll provide instructions or stop by to assist.
How to Read Your Electric Bill from Your Utility Company
Getting your first ConEd bill after your solar panel installation is an exciting moment. It can be a bit confusing though, because ConEdison does a poor job of explaining their billing and recordkeeping system.
Below is an example of what your bill will look like after installing solar panels. The following is a quick breakdown of each section on your new bill and what it all means.
Your Net Meter Summary
This new section lists ConEd’s record of how much energy you’ve bought from them. It also tells you how many credits (if any) you have stored up through their net metering program.
Your Electricity Usage
If your house required more electricity than your solar array produced in a month, the value will be positive. This is because you bought some extra from the grid to make up the difference.
If your system produced more energy than you needed in a month, the value will be negative because you gave away your excess to the grid.
In other words, this first column should read ‘Your Grid Electricity Use.’ It indicates how much energy from the grid your home used that month.
How to Read Your Net Meter Summary
Cumulative Net Meter Energy Credit
The negative value from the previous column gets stored in this column. ‘Cumulative Net Meter Energy Credit’ is your “bank” of stored up solar credits.
If your grid use in the first column is negative in a given month, that amount will get added to the previous month’s banked amount.
If your grid use is positive, that amount will be withdrawn from your credit bank if you have any.
If your credit bank hits zero, ConEd will charge you for any remaining amount of power. The last column lists this amount as ‘kWh Billed.’
Note: If you get an unusual bill, it’s good to check the reading type. If the most recent reading says ‘Estimated’, ConEd didn’t take a true reading this month. Your bill may be much different than what really happened. They often incorrectly estimate that recently installed systems are not active. In this case, they will take a true reading within a month or two and correct for any overcharges.
Understanding Your Energy Consumption
You may need to do some math in order to get the full picture of your home’s energy consumption. One confusing factor here is that ConEd cannot see how much power your solar system generates. All they can see is how much power you take from or give to the grid.
We’ve created the chart below to show how adding your Sunny Portal production data to your ‘Net Meter Summary’ can give the complete picture of your home’s energy consumption.
For example, if your solar system produced 598 kWh between September 10th and October 9th, but 411 kWh were sent back to the grid, that means your home consumed 187 kWh in that period.
Similarly, if your system produced 498 kWh between February 11th and March 12th, and an additional 157 were brought in from the grid, that means your home consumed a total of 655 kWh.
Keep this in mind if you need to figure out your home’s true electric consumption for any reason, or if you’re interested in determining your true solar offset percentage for a given month or year (Solar Production divided by Actual Home Usage).
If you have trouble finding your solar production numbers, please let us know and we can direct you to them. Also, feel free to reach out if you believe there are issues with your solar system’s performance.
If you believe there is a problem with your billing, contact ConEd’s Net Metering division at firstname.lastname@example.org or 212-780-6600. Remember, they cannot see how much energy your system has produced.
Claiming Your Solar Tax Credits
The final step in the solar process is an exciting one: collecting your tax credits! When tax season arrives, there are a few different tax credits your system may be eligible for. We can provide some basic information and resources on these credits, but because we are not financial professionals, be sure to look to an accountant or tax expert for guidance on filing.
For filing purposes, your installation date and signed contract are available in your customer portal.
You May Be Eligible for These Solar Tax Credits:
- The Federal Solar Income Tax Credit: an income tax credit worth up to 30% of your installation costs.
- The New York State Solar Income Tax Credit: a state income tax credit worth up to $5,000.
- The NYC Property Tax Abatement: allows NYC homeowners to claim 20% of solar energy system costs as a property tax abatement over a 4 year period.
- NYS Historic Homeownership Rehabilitation Credit: If you live in a qualifying historic neighborhood, your solar installation may be eligible for an additional 20% tax credit.
Learn more about the solar tax incentives available to New Yorkers.
Monitoring Your System with Your Solar Company
When your solar PV system is installed, the solar system’s inverter will be connected to your home’s WiFi. This connection enables your new solar panels’ production data to be collected in your Sunny Portal. This allows you to track your system’s energy production and determine your offset, if you feel so inclined.
Connecting your system to WiFi also allows us, your solar installer, to monitor your system remotely. As part of our insurance package, we provide all of our customers with 24/7 real-time monitoring in the event that there are any issues with your system at any point in the future.
Enjoy the Many Benefits of Your New Solar System
The use of solar energy is important for a number of reasons, and it’s an exciting moment to finally have your rooftop solar system installed. Once your system is installed, you have access to clean energy produced right in your own home.
Because switching to solar power is such a meaningful decision, it’s important to us that all of our customers fully understand the solar panel installation process, from contract signing through post solar panel installation.
Ready to make the switch to solar for your NYC home? Trust an expert. Talk with us today!
With tax season fast approaching, you may be thinking about what tax incentives are available for residential solar. One of the best tax credits to take advantage of right now is the Federal Solar Investment Tax Credit (ITC), otherwise known as the federal solar income tax credit or federal residential energy credit. Here’s what you need to know about how the federal solar tax credit works.
Disclaimer: Brooklyn SolarWorks are not financial professionals. As much as we’ll always strive to provide our customers with the most accurate information regarding solar tax incentives, we are not tax experts. Please consult your tax advisor for guidance on filing for credits with respect to your specific circumstances.
What is the federal solar tax credit?
The federal solar income tax credit allows homeowners to deduct up to 30% of their solar system installation costs from their federal income tax. This is a dollar-for-dollar reduction in the amount of income tax you owe to the federal government. If the credit exceeds a taxpayer’s single year tax liability, they can divide the credit over multiple years. This credit is available for residential and commercial installations, but each has different guidelines.
The solar ITC was established by the federal government in the Energy Policy Act of 2005, and has been instrumental in incentivizing residential solar. In fact, SEIA estimates that the ITC has expanded the solar industry by 10,000 percent. Additionally, a study by SolarReviews.com found that the ITC is the single most important financial incentive for U.S. homeowners to invest in solar. Because of its popularity, it has been extended multiple times over the past 15 years.
Most recently, the 30% federal tax credit was extended in August 2022 for an additional 10 years. The credit will then step down to 26% in 2033, and 22% in 2034.
Is there a difference between the federal solar tax credit and the solar investment tax credit (ITC)?
You may see “federal solar tax credit” and “solar investment tax credit” – or a combination of the two – in different places. “Investment Tax Credit” is the given name of this credit, but some may refer to it as the “federal solar tax credit” in shorthand. The form that you’ll file to claim this credit refers to it as the Residential Energy credit. For all intents and purposes, these are all the same.
How do I know if I’m eligible to claim the federal investment tax credit for solar?
Pay Income Taxes
First and foremost, in order to claim any income tax credit with the federal government, you must be paying income taxes.
Ownership of Solar System
The most important criteria for determining your eligibility for the solar ITC is ownership of the system. You must own your system outright in order to claim this credit. You are not eligible if you lease your solar system or enter into a power purchase agreement.
Installation Location and Timeline
The solar system that you claim should be installed on either your primary or secondary home in the U.S. A “home” is defined by the IRS as “where you lived” during the tax year – this can be a house, houseboat, mobile home, co-op, condo, or other form of housing.
You will file for this credit when you do your taxes for the year your system was installed. For example, if your system is installed in 2022, you will file for the credit when you do your 2022 taxes.
You may wonder if this credit only applies to a certain income level. It does not! Taxpayers from all tax brackets can claim the ITC on their federal taxes.
In past iterations of the ITC, there has been some gray area as to what expenses are covered by the credit. However, the IRS currently has a clear definition of qualifying expenses:
“You may be able to take a credit of 26%* of your costs of qualified solar electric property…Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home.
…Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States.”
By this definition, the following expenses are covered:
- The cost of the system, including panels, racking, inverters, and other equipment
- Labor costs, including installation and permitting and inspection fees
- Solar batteries
- Any applicable sales taxes
Despite a clear definition, there is still some disagreement when it comes to roof replacement costs. Some solar installers may tell you that you can replace your roof in tandem with installing solar panels and claim the roof replacement costs under the ITC. It is our interpretation that roof replacement is not a qualifying expense.
In its definition of qualifying expenses pictured below, the IRS clearly states that “structural components such as a roof’s decking or rafters that serve only a roofing or structural function” do not qualify for the credit. You can find the highlighted section of the tax code here.
*This quote was taken from the 2021 tax code, when the tax credit only accounted for 26% of installation costs. As of August 2022, it was boosted to 30%.
When can I claim the solar tax credit?
You are eligible to claim the federal solar tax credit for the year in which your system was installed. If your system is installed in 2022, you’ll claim the credit when filing your 2022 taxes. If you do not have enough tax liability to use the credit in just one year, you can divide the credit over multiple years.
How much is the solar tax credit?
The federal solar tax credit covers 30% of your installation costs. In 2033, the credit will drop to 26% and then 22% in 2034.
How to Claim the Federal Solar Tax Credit
To claim this credit, you’ll need to file IRS Form 5695 for Residential Energy Credits in addition to Form 1040 and any others applicable to your situation. This form calculates tax credits for a variety of energy efficient home improvements, including residential renewable energy.
There are essentially three main steps to take when filing for the federal solar tax credit:
- Determine your total tax liability for the year. This will tell you whether or not you can use the entire credit in one year or if you’ll be able to carry it forward.
- Complete Form 5695, following the instructions to calculate your tax credit amount. Completion of this form will also tell you how much of the credit you’ll be able to carryover if applicable.
- Add the result of Form 5695 to Schedule 3 of your Form 1040.
Though we strive to provide the most accurate tax information to the best of our knowledge, we are not tax experts. Please consult your tax advisor for more guidance on filing for the ITC.
Using the Federal Solar Tax Credit with Other Incentives
Along with the ITC, there are several New York State solar incentives available. In addition to the federal solar tax credit, NYC solar customers can file for the following state and city solar credits and rebates:
- NYC Property Tax Abatement
- New York State Solar Income Tax Credit
- New York State Solar Rebate
- NYS Historic Homeownership Rehabilitation Tax Credit (dependent upon your neighborhood)
When combined with the ITC, these incentives can cover up to 70 percent of the cost of your solar system.
Other Federal Solar Tax Credit FAQs
Can I claim the federal solar tax credit more than once?
Yes. If your total tax liability from the initial year you filed for the ITC was less than the credit amount, you can claim any carryover credits the following year. The credit can be used over multiple years depending on your tax liability.
Is the solar tax credit refundable?
No, the ITC is a nonrefundable credit. If the credit exceeds your tax liability for the year, the difference won’t be added to your tax refund. Instead, you can use the excess credit amount on the following year’s income taxes.
Can I claim the solar tax credit on a rental property?
Generally, no. The residential solar ITC applies to the home that you live in.
If you live in your rental property for a portion of the year, you can claim the credit – but you will have to reduce the credit amount to reflect the amount of time you lived there. For example, if you lived in your rental property for three months, you can claim 25% of the credit (to reflect the 25% of the year that you lived there).
Is the federal solar tax credit expiring?
The credit will be available until at least 2034. In August 2022, the federal government extended the 30% credit for 10 years, after which the credit will begin to step down. In 2033, it will be 26%, then 22% in 2034.
The Federal Solar Tax Credit for Homeowners in New York City
The federal solar tax credit is just one of several excellent financial incentives available to New Yorkers. When combined with state and local tax incentives and rebates, up to 70 percent of the cost of your solar system is covered. Like any home improvement project, solar is a big investment – but unlike an addition to your house, for example, the financial benefits of solar are available to you almost immediately.
Though the initial price tag may seem out of reach, a solar installation in NYC is more affordable than you think.
If you’ve been considering solar, now is the time to flip the switch. Take advantage of solar tax incentives at their peak – schedule a free consultation to get started today.