Cost of Solar Power Reduced with Federal Tax Credit

Solar power is a great source of renewable energy. It doesn't add pollution to the atmosphere and reduces the dependence and use of coal and other fossil fuels, allowing individuals to reduce their carbon footprint. 

However, the cost of solar power is five times higher than from coal and other sources and the pay back period is many years, leading many Americans to stay away from using solar. To encourage Americans to use solar power, there are federal, state, local and utility incentives and rebates for solar energy systems. 

These include tax credits, tax deductions, property tax relief, purchase incentives (rebates), production incentives, and more. More specifically, the Environmental Protection Agency (EPA) and the Department of Energy offers tax credits for solar-powered appliances. 

Although rebates and incentives can vary from state to state, there is an overarching federal tax credit available for residential installations for solar panels. The Internal Revenue Service expanded the federal tax credit for solar power, making it so that systems installed between Jan. 1, 2009, and Dec. 31, 2016, are eligible for a tax credit equal to 30% of the cost. To qualify, the system must supply electricity to a residence and meet local building codes. This tax credit is only for residential purposes. Corporate deductions, exemptions, and tax credits are available the commercial, industrial, and government entities. 

Solar tax exemptions, including both property and sales tax exemptions, are provided by state and local governments to help lower the costs of owning solar energy property. For both business and residential solar systems, there are also federal grant and loan programs. Several are backed by the US Department of Agriculture (USDA). These loans and grants assist people to install solar power panels.

In addition to tax credits and rebates, a typical residential solar system should reduce electricity bills by 25 percent to 50 percent, according to the Solar Energy Industries Association. The average household pays about $110 a month for electricity, according to the Energy Department, so a solar-panel system should save you between $300 and $600 a year. The payback period will vary greatly depending on how sunny it is where you live, the size of your system, the cost of your system, and future swings in local electricity costs. That being said, it could take anywhere from 6 to 18 years to get paid back for your solar panels.

When it comes to a particular state, things vary. In general, systems are cheaper in places like Arizona and California, where electricity is expensive, sunshine is plentiful, and solar has gained wider acceptance.

For example, the California Solar Initiative (CSI) allows residents to hire a certified a San Diego Solar installer to not only install the solar panels in San Diego, but also handle the CSI process for rebates on installation. Once the system is up and running, a resident can then claim their incentive (or payment). Residents can do this on top of their federal tax credit, getting the most cost effective solar panels possible. 

Although not every state is as solar-forward thinking as California, each has some sort of incentive, tax credit, or rebate available. Search the Database of State Incentives for Renewables & Efficiency for state and local incentives in your area/