The Complete Guide to Solar Incentives in 2020 for New York City and Long Island
The residential solar industry has been booming for over a decade now, and if you’ve ever looked into the subject, you’ve probably heard about government incentives aimed to make solar more affordable.
Of course, solar panels are hardly new; they’ve been deployed in their current form since NASA first started using them on satellites in the 1950s. You’ll find them on every satellite orbiting the earth, as well as Mars and lunar rovers, but it’s only been since the turn of the century that they became affordable to install on people’s homes. And this has largely been due to the incentives you’ve heard so much about.
Various incentives have come and gone. Some of the earliest incentives were already used up. Some of the largest ones are still available, but are in the process of phasing out. Of course, with electricity rates on the rise, and New York State already paying more for power than most states in the country, solar power will always be a popular alternative to conventional fossil fuels. The question becomes, when is the best time to go solar?
The short answer: while the solar incentives are still available. These incentives reduce the real cost of going solar and let you control your electrical costs, add value to your property, and participate in a national energy transformation that will improve our nation’s security while helping the environment at the same time.
So what incentives remain for New Yorkers? Primarily the federal and state tax credits, but depending on where you live, there could be more. Let’s take a look at them all.
What is the Federal Solar Tax Credit?
The federal government has directly supported investment in solar energy since the enactment of the Investment Tax Credit (ITC), colloquially known as the solar tax credit, in 2006. It’s also been one of the most popular tax credits of its kind, and has largely been responsible for the tremendous growth in the solar industry in the past decade. As the Department of Energy describes the solar potential of the continental U.S. as “staggering”, some would say this investment was long overdue. As a direct result of this government investment, the solar industry employed nearly 250,000 people nationwide in 2019, and is competitive with conventional fuel sources in energy markets.
The federal ITC is a non-refundable tax credit that originally offset 30% of the solar project’s cost and was reimbursed from the normal federal tax liability of the solar array’s owner. This 30% tax credit was uncapped, which made investment in commercial and utility-scale solar arrays significantly more accessible. In fact, the Long Island Solar Farm, which was the largest on the east coast, began construction only a few years after the ITC was enacted and went live a year later in 2011 with an system capacity of 32 megawatts (AC).
When it comes to the residential solar side, the “owner” aspect of the ITC is important. Residential solar contractors often promote both ownership and leasing options. When you lease a solar system, the contractor or finance company remains the owner, and the federal tax credit directly benefits them. Whether this translates into a benefit for you depends on your leasing agreement.
On the other hand, when you finance a solar system, or purchase one outright, the federal ITC directly benefits your investment. It’s important to be aware of this distinction ahead of time, as well as the other pros and cons of solar ownership versus leasing.
Am I Eligible for the Federal Solar Tax Credit?
It is important to consult your tax advisor to confirm your eligibility, in this article we provide general information but not tax advice specific to your circumstances.
Qualified homeowners can claim their federal credit starting the year they were installed using IRS Form 5695. This non-refundable tax credit is derived from your income tax liability. It’s important to note that other forms of tax liability, such as social security or self-employment taxes, do not contribute to your eligibility for this credit.
If you currently don’t pay federal income taxes, then you won’t get much use from the federal ITC. However, if you expect to pay income taxes for the year your solar system will be installed, or perhaps the subsequent year, then it’s possible you could still receive it — if, for example, you’ll start a new job, lose other deductions or credits, or expect to earn capital gains. Speak to your tax advisor regarding your individual eligibility.
This credit can often be claimed over multiple tax years starting with the year you are installed. If you are installed in 2020, you’ll be able to claim the credit and get reimbursed when you file in 2021. If you require multiple tax seasons, you will get the full value of the credit available in the year you were installed. (This is important, as the federal credit has begun phasing out. More on that later.)
Once the full credit is disbursed, you can no longer claim it. You are, however, allowed to claim the federal credit on multiple solar systems, such as a solar system on a second property, or if you sold your home and went solar on a new house. Again, you’ll want to consult a trusted tax advisor for your specific situation.
Is the Federal Solar Tax Credit Going Away?
Unfortunately, yes. When the federal ITC was enacted in 2006, it reimbursed 30% of the solar project’s cost. This was extended by Congress in 2015 for another four years until it began phasing out at the end of 2019.
Starting in 2020, the federal tax credit is now 26% of the project cost. In 2021, it will be further reduced to 22%. Once we reach 2022, the federal credit will disappear entirely for residential arrays, with a 10% credit remaining for commercial and utility-scale arrays.
Although the federal credit has begun losing value, it is still by far the largest incentive available, and it’s available to every taxpayer who goes solar. What’s more, New Yorkers have additional incentives available from their state government, notably the state solar tax credit. Let’s get into that next.
How Does the New York State Solar Tax Credit Work?
It is important to consult your tax advisor to confirm your eligibility, in this article we provide general information but not tax advice specific to your circumstances.
New York State has an additional tax credit, officially known as the Solar Energy Equipment System Credit. It’s filed using the state tax form IT-255. It works much the same way as the federal tax credit, as it’s derived from your personal income tax liability, although there are a few key distinctions.
First, the state tax credit can only be claimed on your primary residence. While the federal credit can be claimed on multiple homes, the state credit can only be claimed on the home in which you live.
Second, the state credit offsets 25% of the qualified solar expenditures (in other words, the project cost) and is capped at $5,000. Regardless of your system size or your tax liability, the state treasury will return 25% or $5,000, whichever is lower. This credit applies to systems installed on residential or multi-family homes with a maximum size of 25 kW (DC) and 50 kW (DC) for condominiums or co-ops.
Similar to the federal credit, the New York State solar credit is returned in full when the tax credit is claimed. However, if you’re unable to recover the full amount due to low tax liability, you can continue filing for up to 5 years, including the year of installation. In theory, if your tax credit were $5,000, and you paid $1,000 in state taxes, you could claim the full amount in 5 years. If you paid $8,000 in state taxes, you’d get it back in the first year. If you paid $3,000 in state taxes, you would get the credit back in full within 2 tax seasons.
The state and federal solar tax credits offset a substantial portion of the project cost. For most New York residents, the remainder is what you’d either pay upfront or finance (if you were looking to own your system).
Of course, solar systems aren’t cheap, and even with tax incentives, many New Yorkers may feel solar ownership is out of their reach. It’s worth noting that the state government has an additional incentive available specifically for households on limited budgets.
Are there any Income-Based Solar Incentives?
Yes, there is one. It’s the Affordable Solar incentive, which takes the form of a direct grant, and it’s available via application from the New York State Energy Research and Development Authority, or NYSERDA.
This incentive allows New Yorkers who report a household income less than 80% the median income for their region to request assistance paying for their solar system. Currently, the level of assistance is $.40/watt. As most residential systems are measured in kilowatts, the Affordable Solar incentive can add up quickly. For example, if you have 18 panels, and each panel is rated at 340 watts, then your system is rated at 6,120 watts, or 6.12 kilowatts (kW). In this case, your Affordable Solar incentive would equal to $2,448 taken off the quoted cost of the system. This incentive is the same regardless of the price quoted by your contractor.
The Affordable Solar incentive is capped at $2,500 and is paid directly to approved NYSERDA contractors on your behalf. It applies to the total cost of the project before the federal and state tax credits are factored in. Income screening is required by NYSERDA to determine your eligibility.
These are the incentives that are available to eligible homeowners statewide. But wait, there’s more! If you’re a New York City resident, you have still more incentives available. Let’s get into those.
What Solar Incentives are Available in New York City?
Despite being the most populous and densely-packed city in the country, New York City is actually quite energy efficient. While the average American is responsible for approximately 19 metric tons of CO2 emissions per year, the average NYC resident is responsible for less than a third — about 6.1 metric tons. Clearly, the city has made considerable investments in energy efficiency and sustainability, so it shouldn’t surprise anyone that they’re ahead of the curve when it comes towards encouraging renewables.
There are two notable incentives available specifically for NYC residents in 2020; the first one is a utility rebate which actually comes from the state but is allocated based on region. The second is a property tax abatement that comes directly from the NYC government.
What Kind of Rebate Does Con Edison Offer for Going Solar?
Con Edison, the electric and gas utility for the five boroughs, provides an incentive to reduce the cost of your solar system. The funds for this rebate actually comes from NYSERDA’s Megawatt Block program, which allocates incentives based on region and “blocks”, which are benchmarks of installed solar capacity. As successive benchmarks are met, the incentives are reduced; these types of incentives are intended to benefit early adopters, therefore you should think of them as first come, first serve.
Currently, Con Edison offers a rebate of $.20/watt of installed solar capacity (DC) for residential systems. Pretty much every residential system will be measured in kilowatts (kW), which is one thousand watts. The DC capacity refers to the system size. If your hypothetical solar system has 18 panels, which are rated 340w each, then your system is rated at 6,12 watts, or 6.12 kW. The Con Ed rebate for this system would be $1,224. The rebate is the same regardless of the price quoted by your contractor.
The rebate applies to the total cost of the system before you account for the federal and state tax credits.
It’s important to note that the utility rebate is reduced without public announcement. Once the benchmark of the “block” is met, it is closed; the next lower block is then opened. Block 8 offered a rebate of $.30/watt, and was closed on February 13th, 2020. Block 9 is now open and provides $.20/watt. There does not appear to be a Block 10. For more information, visit NYSERDA’s page for this incentive in the Con Ed region.
For curious Long Islanders, the Megawatt Block applied to LIPA territory as well, but given the smaller population, only 4 blocks were created. The last block was closed on August 17th, 2016.
What Incentive Does NYC Offer for Solar Systems?
New York City is quite energy efficient on a per capita basis, but it’s still the most populous city in the country and thus has immense energy requirements. Solar systems on residential homes is an excellent way to get more energy from existing real estate, and the city government will encourage you to do so with a generous property tax abatement.
This benefit begins for the year your system is installed. It allows you to reduce your property tax burden by one-fifth of the solar system cost (20%) divided over 4 years. In other words, 5% of the solar system cost per year. This is based on the total cost of the project before the federal and state tax credits are applied.
Eligibility for this benefit is determined by the NYC Department of Buildings, and the benefit is applied by the Department of Finance. There are some restrictions for real estate developers; if you receive ICAP, 421-a, 421-b, 421-g, or pay PILOTS — all of which are existing property tax abatements, exemptions, or incentives — then your property is not eligible for the solar property tax abatement. This incentive is capped at $62,500. For more information, visit this page; note that the benefit is still active in 2020.
It is not certain if this benefit will be continued next year. However, if you’ve already been installed, you can still claim the benefit for its full value even if it’s been discontinued for new systems.
This wraps up the direct incentives available statewide and for NYC residents in particular. But every now and then, a shrewd New Yorker will wonder if these incentives are recovered on the back end. Let’s take a quick look at that.
Am I Being Taxed on My Solar System?
Not at this time. The federal and state governments do not levy a sales tax on solar systems at this time.
What about your municipal government? Just like a renovated kitchen or a finished basement, solar systems add considerable value to your home. This was explored in a 2015 study “Selling Into the Sun” by Lawrence Berkeley National Laboratory in California, as well as a 2019 statistical study by Zillow. However, while your real estate agent might appraise your home at a higher value, the state has a 15-year exemption on the value of your solar system for your property tax rate.
Your municipality would need to deliberately opt-out of this incentive in order for them to tax you. Currently, there is one area on Long Island that has opted out — Shoreham-Wading River Central. Every other municipality on Long Island and in New York City will not include your solar system in your property taxes for 15 years after you get installed. Check out the full list of counties here.
Between the tax credits, income-based grants, property tax exemptions and abatement, New Yorkers have access to more solar incentives than nearly any other state in the country. These benefits substantially reduce the real cost of going solar by nearly half. The remaining half, of course, is left for the homeowner to either pay upfront or finance.
How Can I Finance My Solar System?
Traditionally, when environmentally-minded New Yorkers wanted to own a solar system, they needed to pay upfront for it. These systems typically cost tens of thousands of dollars, and even with the substantial reimbursement via tax credits, that’s a lot of money to spend upfront. (Hence why many homeowners initially favored leases.)
Solar lenders have stepped in to offer financial products specific to the solar industry. Solar loans will often cover the entire upfront cost of the project, which meets the “zero out of pocket” criteria many homeowners prefer. This allows the homeowner to get installed, file for the tax credit reimbursement, and once those credits are in hand, apply it towards the loan. So instead of paying the full amount upfront, they’ll pay the tax credit portion when they have the tax credits.
The remainder is what’s financed over a term period. Solar loans are secured loans (using the solar system as collateral) and the lender provides a fixed interest rate and a term length. The interest rate is amortized over the term and the homeowner makes fixed monthly payments. Therefore, their electric bill is immediately reduced, and the savings now go towards a system that provides free, clean energy for decades while adding to the value of the home. Solar loans vary from lender to lender, so you’ll want to consult your solar contractor for more details.
New York state residents have another option available. While it’s flown under the radar for a few years, the New York State Energy Research and Development Authority (NYSERDA), which provides funding for utility solar rebates and the Affordable Solar incentive, also provides unsecured financing regardless of income for solar-optimal homes in the NY-Sun program.
Like all solar loans, NY-Sun requires income screening and a credit check for interested homeowners. It’s only available through NYSERDA-approved contractors, who must demonstrate appropriate credentials, experience, and customer references. They must also accept random audits of their work to demonstrate ongoing compliance with NYSERDA performance standards.
In some cases, for highly productive and cost-effective systems, NYSERDA allows homeowners to finance their solar project through an On-Bill Recovery Loan. This is a loan that manifests on the electric utility bill; the electric charges would be reduced, and the solar payment would appear instead, allowing homeowners to finance their system using the same bill they were receiving already. NYSERDA’s On-Bill Recovery Loans are associated with the utility account instead of your personal credit profile; therefore, they don’t affect the homeowner’s personal debt-to-income ratio (DTI) for future private loan applications. Additionally, the On-Bill Recovery Loan allows homeowners to sell their home and transfer their system without requalifying the next owner.
Interested homeowners can use NYSERDA’s tool to Find a Contractor, or they can simply ask the contractor they prefer if they work with the NY-Sun program. It’s a bit more paperwork for the contractor — after all, it’s a bureaucratic program — but it’s proven an immensely popular program among customers installed.
New York State has set highly ambitious targets for electricity generation from renewable sources — seventy percent by 2030 and one hundred percent by 2040. As electricity rates continue to climb, there will never be a bad time to go solar. But with the federal tax credit phasing out, the best time might be now.
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