One of my favorite side-benefits of investing is that it incentivizes me to learn more about topics that I might not have been interested in otherwise.

Case in point: solar energy, since I invested a small amount of money in Sunlight Financial. Since then, I started listening to a bunch of youtube testimonial and economic analysis of solar PV panels and whatnot.

These past few days, I was also curious about the economic solar energy incentives provided by the different layers of government and other entities, and I decided to save what I found for later reference.

  • Federal solar tax credit, called the Investment Tax Credit (TIC)(link1, link2, link3). This one is set to expire in 2022, and allows both commercial and residential to deduct 26% of the cost of their solar system installation from their federal income taxes. Just to be clear, it reduces the taxes directly, not the income before taxes. For residential, this credit is set to reduce to 22% in 2023 and expire in 2024. However, it has been extended already multiple times in the past (most recent extension was in December 2020 under Trump). This tax credit applies when you own the solar PV system (purchased it cash or through financing, not leasing).

  • State tax credit: offered by a few states (e.g. Arizona, New York). Since it increases the taxable income on federal level, this credit is basically taxed at the federal tax rate. For example, combining the federal tax credit of 25% and a state-level credit of 25%, and assuming a federal tax rate of 22%, would lead to an overall credit of: 0.26 + (1 - 0.22) * (0.25) = 45.5%. Some states extend these credits to batteries as well.

  • Other state-level incentives: other programs and rebates are available depending on the state, locality, household income and utility you’re connected to. The most interesting one is net metering, which is credit you get on your utility account that can potentially “zero out” your energy bill. A variant of this is called SREC (Solar Renewable Energy Certificate) which puts cash directly in your pocket. With a SREC, the utility company pays you for the clean energy you produce, probably because it is mandated by the government to produce a certain amount of clean energy, and this way is cheaper than adding renewable energy of their own.

Up-to-date information on every available solar incentive and clean energy tax credit can be found at DSIRE.

Until next time, stay cool & stay invested!