The Federal Residential Clean Energy Credit
The federal Residential Clean Energy Credit, sometimes called the solar ITC (Investment Tax Credit), lets homeowners who buy and install a solar energy system claim a credit equal to 30% of the total system cost against their federal income tax liability. That is a dollar-for-dollar cut in what you owe the IRS, not a deduction from taxable income.
For a $25,000 solar installation, the 30% credit equals $7,500. If you owe $6,000 in federal income taxes for the year of installation, the credit wipes out that entire liability. The remaining $1,500 carries forward to the following tax year, cutting that year’s liability. The credit is non-refundable, meaning it cannot exceed your total tax liability across the carryforward years, but it rolls forward until used.
The credit was expanded and extended by the Inflation Reduction Act of 2022, which lifted it from 26% to 30% and extended the 30% rate through 2032. That gives homeowners planning solar installations real certainty over the next several years.
State Solar Tax Credits
Sixteen states currently offer solar-specific state income tax credits on top of the federal credit. The most generous are:
New York: 25% of cost, up to $5,000 credit. Massachusetts: 15% of cost, up to $1,000. Oregon: Variable, up to $9,000 depending on income and system size. South Carolina: 25% of cost.
These state credits apply to the same installation cost as the federal credit, so a New York homeowner installing a $25,000 system could claim the $7,500 federal credit plus $5,000 in state credits, cutting net cost by $12,500 before any other incentives.
Check the Database of State Incentives for Renewables and Efficiency (dsireusa.org) for current state credit availability in your state. Programs change, and some states have funding caps that may be exhausted before you apply.
Property Tax Exemptions
The added value a solar system creates for a home would normally raise your property tax assessment and your annual property tax bill. Most states have passed exemptions that exclude the added value from solar from property tax assessments. As of 2026, roughly 36 states have property tax exemptions for solar installations.
In practice, a solar system adds $15,000 to $25,000 in market value to a typical home, according to Lawrence Berkeley National Laboratory research. Without the property tax exemption, that could raise annual property taxes by $300 to $500 or more depending on local property tax rates. The exemption keeps all of that financial benefit intact.
Sales Tax Exemptions
Over 25 states exempt solar energy equipment from state sales tax, which typically runs 5% to 10% of equipment cost. On a $25,000 system, a 7% sales tax exemption saves $1,750. Combined with the federal credit and state credit, the effective net cost can run substantially lower than the sticker price suggests.
Utility Rebates and SREC Markets
Many electric utilities offer cash rebates for solar installations, typically $100 to $1,000 per kW installed. These programs are run at the utility level and vary widely, with some utilities offering strong rebates and others offering none. Check with your specific utility provider before your installation.
In states that have Solar Renewable Energy Certificate (SREC) markets (including New Jersey, Massachusetts, and Maryland), homeowners earn one SREC for every 1,000 kWh of electricity their system produces. SRECs can be sold to utilities that are required to buy them to meet renewable energy standards. Depending on the state, SRECs can generate $20 to $300 or more per certificate per year, adding ongoing returns beyond electricity bill savings.