A Guide to Federal & State Solar Incentives

The Federal Solar Investment Tax Credit in the Inflation Reduction Act allows homeowners and businesses to receive a credit of 30% of the cost of new solar panel systems, energy storage devices, and installation expenses from their taxes. That tax credit applies to new solar panels installed between 2022 and 2032. The tax benefit then drops to 26% for panels installed in 2033 and to 22% for panels installed in 2034.

Some local governments and nonprofits that are tax-exempt can also benefit from Inflation Reduction Act tax credits through a 30% direct pay incentive. Tax-exempt organizations may choose to partner with a third party that is non tax-exempt. In this arrangement, known as a power purchase agreement, the third party will own the system and recoup available tax credits and depreciation benefits. The tax-exempt organization will then purchase solar power from them. This provides a mutually beneficial relationship and reduces the solar start-up costs for the nonprofit.

Tax-paying individuals or businesses.

For nonprofits and government entities that do not pay taxes, the Inflation Reduction Act provides an alternative benefit for making solar purchases. Instead of receiving assistance in the form of a tax credit, nonprofit organizations and local governments are eligible to receive a payment from the federal government of 30% of the cost of their solar system.

Tax-exempt entities such as state and local governments and nonprofit organizations.

Agricultural producers and rural small businesses could receive up to 50% of the total cost for an eligible solar installation through the United States Department of Agriculture’s Renewable Energy for America Program (REAP). The program also guarantees loans of up to 75% of qualifying solar project expenses. It’s open to agricultural producers and to small businesses and utilities in designated rural areas.

Farmers, rural small businesses, and rural utilities.

Commercial businesses and agricultural producers can deduct a portion of their solar project’s cost from their tax liability every year or choose the Section 179 bonus depreciation option. Asset depreciation allows businesses to recoup the cost of their system over its lifespan. Up to 85% of the cost of the solar system can be counted for depreciation.

Small and large Business, agricultural, agriculture producers, commercial businesses, industrial, manufacturing

In addition to the federal solar incentives detailed above, Iowa residents can receive the following benefits:

• Solar sales tax exemption: Solar equipment is not taxable under Iowa’s 6% sales tax or under the additional 1% local sales tax in areas that have it.
• Property tax exemption: Solar equipment raises the value of a home, but Iowa law exempts this added value from being included in property taxes for the first five years following installation.
• Net metering: This process allows most solar users to send excess energy generated by their panels back into the electric grid, giving them credit for selling this energy back to the company. Then, solar users can use these stored credits when their panels aren’t generating enough energy and they need additional power from the electric grid.

In addition to the federal solar incentives detailed above, Missouri residents can receive the following benefits:

• Property tax exemption: Solar equipment raises the assessed value of a home once it’s installed, but Missouri exempts this increased value from counting toward a homeowner’s property taxes.
• Net metering: This process allows most solar users to send excess energy generated by their panels back into the electric grid, giving them credit for selling this energy back to the company. Missouri requires electric providers to offer net metering, although the specific benefits can vary by company.
• Local utility rebates: Several Missouri utilities offer rebate programs to benefit customers who install solar on their properties.

In addition to the federal solar incentives detailed above, Illinois residents can receive the following benefits:

• Illinois Shines: The Illinois Shines program offers renewable energy credits for qualifying solar projects.
• Illinois Solar for All: This program aims to reduce barriers to solar installation by covering up-front costs for solar installation on homes that meet income guidelines. It also supports community solar projects and solar at nonprofit and public buildings.
• Property tax exemption: Solar equipment raises the assessed value of a home once it’s installed, but Illinois allows this added value to be exempt from counting toward property taxes for the useful life of the system.
• Net metering: This process allows most solar users to send excess energy generated by their panels back into the electric grid, giving them credit for selling this energy back to the company. Illinois requires investor-owned electric providers to offer net metering.

In addition to the federal solar incentives detailed above, Minnesota residents can receive the following benefits:

• Sales tax exemption: Solar equipment is not taxable under Minnesota’s state sales tax.
• Property tax exemption: Solar equipment raises the value of a home once it’s installed, but Minnesota law exempts this added value from being included in property taxes.
• Net metering: This process allows most solar users to send excess energy generated by their panels back into the electric grid, giving them credit for selling this energy back to the company. Minnesota requires public electric providers to offer net metering.

Tax-paying individuals or businesses.