New York Solar Incentives Tax Credits for Residents, Businesses
New York’s renewable energy FOCUS makes it one of the best places in the country to power your home with solar. No, the state doesn’t get as much sunlight each year as Florida or California. But it has something even better: solar incentives and tax credits. Thanks to these programs, you can get the benefits of solar energy at a much lower price.
There are many different solar incentives in the Empire State. Most of them help you install a solar setup for less. Through various programs, you can save on solar panels for your home, your business, or even an institution or government building. But you can also go solar indirectly by joining one of New York’s many community solar projects and enjoy similar cost-savings as having your own rooftop panels, but without the hassle or cost of installation and ongoing maintenance.
We’ll break it all down below and help you understand what solar incentives and tax credits are available to you in New York.
What are solar incentives and solar tax credits?
Solar power has many obvious advantages. It’s a renewable energy source that produces no carbon emissions when used. And the only fuel it requires is free sunlight. But solar setups have one big downside: the installation cost. Many homes and businesses aren’t getting the perks of solar because they can’t afford this upfront cost (or just don’t want to pay it).
That’s where solar incentives come in. These programs encourage people to switch to solar power by lowering its cost. Most incentives come from the government—federal, state, or local. But utilities can also offer them as a way to green the grid.
One common type of incentive is a solar tax credit. This allows you to deduct all or part of the cost of installing solar panels from your tax bill. The federal government offers solar tax credits for homes and businesses, and many states—including New York—do the same. If you live in one of these states, you can stack your solar credits. When you go solar, you can take a discount on both your federal and state tax returns.
Most solar incentives and credits are aimed at helping homeowners and businesses install their own solar setups. This kind of solar has the highest upfront cost, so it needs discounts to make it attractive. But there’s another way to enjoy the benefits of solar at a lower cost: community solar.
When you join a local community solar farm, you don’t need incentives to lower your cost—because there is no upfront cost! You “subscribe” to a share of the power that the farm produces, and in doing so you get rewarded with a discount on your own electricity bills. We’ll cover community solar more below.
Are there solar tax credits in New York state?
Yes, there are many solar tax credits available to New York residents. In most areas, you can save on your federal, state, and local property taxes, all at the same time.
Federal Solar Tax Credit for New York State Residents
The U.S. government offers a federal solar tax credit on new home solar systems. If you install a solar setup in 2022, you can take 26% of the cost off your federal tax bill.
This credit drops to 22% in 2023, and in 2024 it ends entirely.
You can only claim this credit on a new solar setup that’s installed before December 31, 2023. You must also own the panels, not lease them. In most cases, the panels must be installed at your primary or secondary home. However, you can get credit for panels you own at a shared solar farm as long as they don’t produce more energy than you use.
There’s a federal solar tax credit for businesses as well. They can use IRS Form 3468 to claim the Investment Credit for new solar electric or heating projects. For projects started in 2022, the credit is equal to 26% of the cost. It drops to 22% for projects installed from 2023 through 2025 and to 10% after that.
New York State Solar Energy System Equipment Credit
New York residents can also claim a tax credit from the state for new solar systems. The credit is equal to 25% of the cost, up to a maximum of 5,000. If the credit is more than you owe in New York income tax, you can’t get a refund from it. However, you can carry over the balance to future tax years.
Unlike the federal credit, New York’s Solar Energy System Equipment Credit applies to both purchased and leased solar systems. You can also claim it if you lease panels in a shared solar farm for at least ten years.
The New York credit isn’t just for solar panels. You can also claim it for solar heating, cooling, and water heating systems. However, it only applies to equipment installed and used at your primary residence in New York state.
New York State Real Property Tax Exemption
Putting solar panels on your home or business adds to its value. Under normal circumstances, that would mean an increase in your property tax bill. However, in most New York municipalities, you can avoid this tax increase. Just fill out a copy of Form RP 487 and file it with your local property assessor.
Note that some municipalities and school districts have opted out of this property tax exemption. You can check this list to see if your town is one of them.
Are there other solar incentives in New York state?
Tax credits aren’t the only kind of solar incentive available for New York residents. The NY-Sun initiative also offers solar incentives and financing options for both homes and businesses. In addition, residents who install solar setups can take advantage of net metering to lower their utility bills.
The NY-Sun initiative
New York’s NY-Sun program aims to make solar affordable and easy to use throughout the state. It offers a variety of incentives and financing options for both homes and businesses. It also helps New York residents find community solar options in their area, as discussed below.
The MW block structure
The cost of installing solar varies throughout New York state. To make sure solar incentives go where they’re needed most, the NY-Sun program is organized by region. Each region is broken into “blocks,” and each block gets a certain number of megawatts (MW) that are eligible for incentives at a given cost.
Each incentive given out through NY-Sun counts against the number of MW allocated to its block. When all the MW have been given out, there are no more incentives available in that block.
Thus, you can’t always get a NY-Sun incentive for a new solar system. The availability and cost depend on how many incentives have already been given out in your area. You can check the current incentive levels for your region on the MW Block Dashboard.
NY-Sun solar incentives
The NY-Sun program isn’t like a tax credit that homeowners can claim directly. Instead, the program works with solar contractors and developers. They help homeowners apply for incentives and file the appropriate paperwork.
To learn what incentives you qualify for, your first step is to find a contractor who participates in the program. They’ll inspect your home and figure out what kind of solar system is best for you. Then they’ll help you apply for incentives and financing. NY-Sun notifies the contractor when your project is approved. From that point, you have one year to get it installed and claim your benefits.
If your income is less than 80% of the median for your area, you can get extra incentives through Affordable Solar. To qualify for this program, you must complete some minor, low-cost upgrades to your home’s energy efficiency. You must also fill out an Income Eligibility Application, either on your own or with a contractor’s help.
NY-Sun offers solar incentives for businesses as well. These incentives vary throughout the state. Like residential solar incentives, these are available through solar contractors.
NY-Sun financing options
NY-Sun offers a variety of financing options for residential solar projects. They include:
- On-Bill Recovery Loans of up to 25,000, which let you pay for your solar installation bit by bit on your monthly utility bill.
- Smart Energy Loans of up to 25,000, which you pay through the New York State Energy Research and Development Authority (NYSERDA) loan servicer.
- Companion Loans. which you can use to pay for the extra cost of a solar project that costs more than 25,000.
- Renewable Energy Tax Credit Bridge Loans. which help you use your federal, state, and property tax credits to pay for your solar project.
To learn about eligibility and how to apply for On-Bill Recovery and Smart Energy Loans, check out Energy Finance Solutions. To apply for a Companion or Bridge Loan, speak with your contractor.
On-Bill Recovery Loans are available for small businesses and not-for-profits, as well as homeowners. Businesses can also take advantage of Small Commercial Participation Loans. These cover up to 50% of the cost of a project up to 100,000 at below-market interest rates. Or they can apply for an OPEN C-PACE loan from the Energy Improvement Corporation, a non-profit, local development corporation. NYSERDA has more info about all these loan options.
Key takeaways
The best incentives for businesses are tax incentives: between the federal investment tax credit and federal-level depreciation benefits, like the Modified Accelerated Cost Recovery System (MACRS) and bonus depreciation, the current tax incentives available for businesses nationwide can cut the cost of solar in half!
Business Investment Tax Credit
The federal investment tax credit (ITC) works the exact same way for businesses as it does for residential properties that install solar. At present, the ITC provides a credit on your taxes at 26 percent of the value of your solar project.
Importantly, the ITC is a tax credit, and not a deduction. In other words, if your solar project costs 100,000, the ITC reduces the amount that you owe the federal government by 26,000, as opposed to reducing your taxable income.
Modified Accelerated Cost Recovery System (MACRS)
While the ITC is available to both commercial businesses and residential homes, these next two incentives are only available to commercial properties.
MACRS is a depreciation benefit that allows you to recover the value of your solar assets over an accelerated time frame. Unlike the tax credit, depreciation is a way to lower your taxable earnings, meaning it is a way to reduce what you owe on your taxes as opposed to being a credit towards what you owe. For solar, MACRS allows you to recover the depreciated value of your solar install over five years.
MACRS is available at both the federal level as well as for some states taxes–like California. In places where you can take advantage of MACRS both at the federal and state level, MACRS can combine with the ITC to provide tax incentives worth more than 70 percent of the cost of your solar panel system!
Bonus depreciation
Similar to MACRS, bonus depreciation is a depreciation-based tax incentive available to businesses that invest in solar.
The key difference between MACRS and bonus depreciation is that with MACRS, you allocate the value of the depreciation benefit across five years, whereas with bonus depreciation, you’re able to take the full benefit in the first year of your investment. Your savings will vary based on your tax rate, but in most cases, bonus depreciation effectively doubles the impact of the ITC.
At the federal level, bonus depreciation and MACRS are an either-or deal: you either take one or the other. But if you take advantage of bonus depreciation federally, you can still use MACRS at the state level.
Like the ITC, this incentive is a time sensitive one: bonus depreciation for solar is scheduled to expire at the end of 2022–so if you want to take advantage of this incentive, now’s the time to start looking at solar for your business.
What about for non-profits?
You’ll notice that all of the incentives we’ve discussed so far are tax incentives. So what happens if you’re a tax-exempt entity? At the moment, nonprofits cannot take advantage of these tax incentives directly. However, there are entities–like CollectiveSun–that will offer a discount on the cost of your system in exchange for the tax benefits, which their investors can take advantage of.
While the best incentives for solar are often tax incentives, those certainly aren’t the only incentives for businesses to install solar. Many states and utilities offer additional programs and incentives to further offset the cost of solar, usually providing an incentive for every unit of energy your solar panel system produces.
With these types of incentives, like a solar renewable energy certificate (SREC) program or the Smart program in Massachusetts, your state or utility will offer an incentive rate of typically a few cents per kilowatt-hour of solar produced. Performance-based incentives (PBIs) are paid out in addition to any bill savings you’re able to achieve with solar, helping to reduce the solar payback period and to further increase the ROI you’ll see from investing in solar.
Storage incentives for businesses
For businesses considering adding storage to a solar installation, there are a number of incentives to be aware of.
First, all of the same tax incentives listed above for solar also apply for storage, which can quickly reduce the net cost of adding storage. However, to claim the ITC for storage, businesses have to prove that they’re charging the battery with renewable energy at least 70 percent of the time, and the value of the ITC is reduced if the battery is charged by less than 100 percent clean energy. (i.e., if your battery is charged by solar 85 percent of the time, you only get to claim 85 percent of the ITC value.) Beyond that, many states now have solar battery incentives for both home and business owners, including California and most Northeastern states.
Many utility companies charge large electricity users–like businesses!–extra each month based on not just how many kilowatt-hours of electricity they use per month, but also based on the single largest amount of power they pull from the grid over any hour (or fifteen minute period) in the month. These charges, called demand charges, often account for 40 percent or more of a business’s monthly electricity bill, and can be easily offset by adding storage to a solar installation–those savings are perhaps the biggest incentive to install storage!
What if you don’t want to install solar on site?
All of these solar incentives available to businesses add up quickly: for many businesses, solar is an option with a quick payback period (often less than five years), and with a significant return on investment (often over 10 percent!). To get started exploring solar options for your business, sign up for a free account on EnergySage today. We’ll work with you to understand your goals for the project and your energy usage, and walk you through an initial project design. And if you’re ready to get custom quotes for solar from pre-screened installers in your area, we can do that too by tapping into our network of nationwide solar installers.
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How Does the Federal Solar Tax Credit Work?
When you purchase a solar photovoltaic (PV) system during the tax year, you are eligible for a Federal Solar Tax Credit that you can claim on your federal income taxes for a percentage of the cost of the system.
In 2021, the ITC provided a 26% tax credit for systems installed between 2020 through 2022. The ITC will now provide 30% for systems installed in tax years 2022 through 2032. So, when deciding whether to install solar panels. factor in a 26% to 30% discount.
It’s essential to note that you can only claim the credit once. If the taxes you owe that year are less than the credit you earned, your credit will roll over to the following year. Also, remember that the credit is a deduction, not a refund.
Solar Tax Credit Extension
The Solar Investment Tax Credit has offered tax reduction incentives for homeowners who choose to “go solar.” On August 16, 2022, embracing residential solar energy became even more enticing when the Federal Government signed the Inflation Reduction Act of 2022 into law.
Among numerous climate-conscious consumer and industry incentives, the most impactful is the increase, expansion and extension of the Residential Clean Energy Credit—also known as the Solar Investment Tax Credit (ITC).
The ITC effectively raises the amount of credit you can apply against your income tax burden from 26% to 30%. Instead of decreasing next year as scheduled, it’s been extended until 2032 before it reduces again. The tax credit is also retroactive to solar energy systems installed during the 2022 tax year. Here’s what you need to know about the ITC and how to make it work for you.
The Inflation Reduction Act Solar Tax Credit Step-Down Schedule
Although the ITC will be around for at least the next decade, it will begin to phase out in 2033. At that time, the credit amount steps down to 26%. In 2034 it will be further reduced to 22% and eliminated for the tax year 2035.
If you are a homeowner that recently installed a solar panel system in 2022, you are eligible to claim a federal tax credit that covers 30% of the following:
- Solar panels cost
- Solar equipment costs like inverters, wiring and mounting hardware
- Labor costs for solar panel installation, including fees related to permitting and inspections
- Solar power storage equipment costs like solar batteries. Storage devices must have a capacity rating of at least 3 kilowatt-hours (kWh).
- Sales taxes paid for eligible solar installation expenses (though some states waive sales tax on PV system equipment)
What is the Business Solar Tax Credit and How Does it Work?
In 2006, the federal government enacted the solar investment tax credit, giving residential and commercial property owners a tax credit for solar system installation. While the initial credit was 30%, it was reduced to 26% in 2020. This credit will be extended until the end of 2022, when it drops to a 22% credit for 2023, and eventually reduces to a 10% credit beginning in 2024.
The solar tax credit for businesses is a dollar-for-dollar credit toward the business’ income taxes. Without the credit, this money would go straight to the federal government. By having solar energy installed in your business, you are given a very valuable credit, saving you 26% on your tax bill.
The solar energy costs that can be included in the tax credit are the solar panels, costs of installation, circuit breakers, racking, energy storage, as well as taxes for equipment sales and usage.
Who is Eligible for the Tax Credit?
The physical work test is the ability to prove that there was a significant amount of physical work over a specific time period.
With the commence construction/safe harbor clause, businesses may qualify for the credit in the tax year if the project was started before the end of the year. They will be given the credit for that year if they have already paid for five percent of the construction project.
There are also a handful of other eligibility requirements that businesses must meet in order to be granted the commercial solar tax credit. These requirements include:
- Being a commercial business that pays US federal income taxes.
- Being located in the United States or United States territories.
- The solar energy system needs to use equipment that is either new or previously used under limited circumstances.
- Not being used as energy to heat a swimming pool.
What are Some of the Benefits of the Business Solar Tax Credit?
Having solar installed for your business and receiving the solar tax credit is extremely valuable for your company.
With solar energy, you will be able to reduce the overall cost of energy for your business, as well as gain freedom from those ever-increasing utility pricing spikes. This is extremely important, as electricity costs only continue to rise, costing businesses more and more money.
Claiming the solar tax credit when you have your solar energy installed helps to reduce the cost of your installation and the equipment used. The ITC has multiple incentives, including government rebates, property tax exemptions, taxable state grants, loan guarantees, and depreciation deductions.
If your business has paid for five percent of the project cost, you can claim the tax credit and receive many benefits. You may also qualify for a tax credit if you charge your commercial energy storage system with renewable energy at least 75% of the time. Your credit amount is dependent on how often solar energy powers your battery storage system.
Large solar energy projects that don’t have an extensive tax liability may be able to receive tax equity financing for their system.
How to Apply for the Business Solar Tax Credit
If you qualify for the business solar tax credit, applying is simple. Just complete and attach IRS Form3468 to your tax return when you file your taxes. If you’re unsure how to properly fill out the form, you can find complete instructions and guidelines under “Instructions for Form3468” at www.irs.gov/pub/irs-pdf/i3468.pdf or speak to a tax professional.
If you own a Florida business and you’re ready to get your commercial solar project started, you’ll want to contact SEM Power right away. The business solar tax credit will only be at a rate of 26% until the end of 2022, so it’s important to get your project started right away.
SEM Power is a top-notch solar company serving homes and businesses in Florida. We offer high-quality commercial solar installations, helping Florida businesses reduce their energy costs by 30%. SEM Power works hard to make your solar transition seamless, ensuring that your business can continue functioning at high capacity without disruption.
SEM Power wants to make sure you get the solar tax credit before it reduces in 2023. By paying just five percent of the cost of the project, you’ll be able to claim the full credit on your 2022 tax return. SEM Power will help you get started with commercial solar financing solutions so that you can get your project going right away.
Choose SEM Power for the most extensive engineering, procurement, and construction experience in Florida. Get your business going with renewable energy this year to lower your costs and get the full tax credit before it’s gone.