Colorado Solar Tax Credit and Incentives: 12 Things You Should Know
Did you know that Colorado has enough solar to power 438,842 homes? As a result, the state now ranks 13th in solar generation.
One reason for that growth is that more people are now aware of the environmental benefits of solar. After all, it’s a clean energy source, with a carbon footprint far lower than fossil fuels.
over, solar continue to drop every year. Part of that decrease, in turn, is due to numerous solar incentives.
With that said, you may now be wondering if those incentives include a Colorado solar tax credit. Luckily, that’s one of the topics this guide covers. So, read on to learn more about it and the other money-saving programs offered to those who wish to go solar in the state.
Colorado Solar Tax Credit
Does Colorado have a solar tax credit?
Unfortunately, there’s no specific residential or commercial Colorado state solar tax credit.
Don’t let that disappoint you, though, as you can still apply for the federal Investment Tax Credit (ITC). As a nationwide program, it affords homeowners in Colorado a tax credit for solar panels.
over, the Centennial State offers several other tax breaks for solar energy systems. One of these is the Sales and Use Tax Exemption for Renewable Energy Equipment. Another is the Property Tax Exemption for Residential Renewable Energy Equipment.
On top of those are the incentives from local governments and utility companies. Net metering and Power Purchasing Agreements (PPAs) are also available in the state.
Thanks to all those programs, you can start your solar journey in Colorado for much less.
Federal Solar Investment Tax Credit
A tax credit reduces the income taxes you’d otherwise owe the government. It affords you a dollar-for-dollar reduction on your owned income taxes.
The federal solar ITC, in turn, is a tax credit you can apply to a solar energy system’s total installation cost. It has been in place since 2006, the same year it should have expired. However, Congress has moved up its expiration several times since then.
The solar ITC is still available today, thanks to Congress extending it yet again. Although the rate has dropped from the original 30%, it still offers a significant 26% credit.
Clean energy incentives and programs
A clean energy system has many benefits, including saving you money. Several PGE and non-PGE incentive programs exist. Each program is specific to the renewable energy technology you plan to install and has its own eligibility rules.
We can also help you find a contractor who will help you to understand the incentives and which program is right for your needs. Visit Find a Contractor.
COMPARE INCENTIVE PROGRAMS
Disadvantaged Communities Single-Family Affordable Solar Housing (DAC-SASH)
The Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH) program is administered by GRID Alternatives, a nonprofit that works to provide solar to customers who are in economically or environmentally disadvantaged communities and are under certain income thresholds. GRID provides incentives to cover the full cost of solar panels on customer homes and enables customers to save on their bills every month. To learn more, visit GRID Alternatives.
Wind, fuel cell and other clean energy
Self-Generation Incentive Program (SGIP)
Install alternative energy technologies in your home to receive an incentive. Some examples include wind, fuel cells and battery storage combined with heat and power systems. To learn more about this PGE program, visit Self-Generation Incentive Program (SGIP). To learn more about the battery storage technology and evaluate if it’s right for your home, visit Battery Storage for Residential Customers.
Solar on Multifamily Affordable Housing (SOMAH)
The SOMAH program provides financial incentives for installing photovoltaic (PV) energy systems on multifamily affordable housing. To learn more, visit the SOMAH website.
California Solar Initiative (CSI) thermal program
The final date to submit new solar water heating applications to the CSI-Thermal program was July 31, 2020. Remaining applications must be completed and receive incentive payment(s) before the program closes on October 31, 2024.
NOTE: Incentive program applications are typically completed by your contractor. If you receive incentives, your contractor may discount your up-front costs with your incentive amount for immediate savings.
Net Energy Metering Aggregation Program
The PGE Net Energy Metering Aggregation (NEMA) program may be a good option for customers looking to utilize a renewable energy system to serve the load of multiple meters on the same property, or on adjacent or contiguous properties. To learn more about NEMA, visit Discover Net Energy Metering Aggregation.
The PGE Virtual Net Energy Metering (NEMV) program allows an individually metered multi-unit property to use the output from a renewable generator (e.g., solar panels) account to provide bill savings to individual units. To learn more, visit Virtual Net Energy Meting Overview.
How to qualify for the 30% federal solar tax credit in 2023
As we said earlier, most Americans will qualify for the federal tax credit. But, there are some cases where you might not be eligible. The eligibility requirements are as follows:
- You must be the owner of the solar panel system.
- You must have a taxable income.
- The solar system must be installed at your primary or secondary residence.
- It must be claimed on the original installation of the project.
Owning your solar system: If you go solar using a solar lease or a solar PPA, you cannot claim the federal solar tax credit because you are not the owner of the solar system. If you purchase solar using a solar loan, you can still take advantage of the tax credit because you are the owner of the system.
What costs qualify for the federal solar tax credit?
Most, if not all, of the costs associated with installing solar panels are eligible to be covered by the federal solar tax credit. Qualified costs include:
- Equipment: The cost of the solar panels, racking, wiring, and inverters.
- Contractor labor: The cost of labor associated with site preparation, installation, and planning, as well as the cost of any permitting fees and inspections.
- Sales tax: Any sales tax associated with the above costs is also covered by the tax credit.
Technically, the tax credit isn’t just for solar installations. Other clean energy systems can also get the tax credit, including solar water heaters, fuel cell systems, geothermal heat pumps, and even small wind energy systems!
Are battery storage systems eligible for the federal solar tax credit?
Yes, energy storage is covered by the 30% tax credit. Thanks to the passage of the Inflation Reduction Act, battery systems paired with solar panels in 2023 can get the full 30% credit. The batteries don’t even need to be connected to solar panels to qualify!
On average, residential batteries cost between 10,000 and 15,000 to install, so you can expect to receive a tax credit between 3,000 and 4,500 for energy storage. If the battery is installed with solar panels, the battery costs will be bundled with the rest of your solar installation costs.
To receive the tax credit, batteries must be at least 3 kilowatt-hours in size. Most home storage batteries are around 10 kWh in size, so you likely won’t have to worry about the minimum capacity requirement.
How does the solar tax credit work with state, local, and utility incentives?
The federal tax credit isn’t the only incentive available to homeowners who switch to solar. You could be eligible for other incentives offered by your state government, or even your utility company. The type of incentive could potentially impact how much your federal solar tax credit will be worth.
Utility incentives
In most cases, if you’re getting a rebate from your utility company, the value of the utility rebate will be subtracted from your total costs before the federal tax credit is calculated. This reduces the value of your tax credit.
Here’s an example: you install a solar system for 20,000 and you get a 450,000 rebate from your utility company. Instead of the tax credit being based on the initial 20,000 cost, it would instead be based on the price after subtracting the utility rebate. In this case, that’s 19,000.
You can use the following formula to calculate how much your tax credit will be worth after a utility incentive:
30% x (Total system cost. Utility rebate amount) = Federal tax credit value
State solar tax credits and incentives
Unlike utility incentives, state government incentives usually don’t need to be deducted before the federal tax credit is calculated.
So, if you installed a 20,000 system and got a 450,000 state government rebate, the solar tax credit would be based on the initial price of 20,000. In this example, that means the tax credit would be worth 30% of 20,000, for a federal tax credit worth 6,000. That would mean you would get a total of 7,000 in incentives.
The same goes for state tax incentives. But, getting a state tax credit will end up increasing your taxable income on your federal tax returns, as you will have fewer state income taxes to deduct. Currently, ten states offer state tax credits, including Arizona, Massachusetts, and New Mexico.
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