Massachusetts Tax Credits for Solar Panels
Understand the financial framework for residential solar in Massachusetts, including how state and federal tax policies reduce your overall installation costs.
To make solar technology more accessible and affordable, various government incentives are available. For residents of Massachusetts, these financial programs exist at both the state and federal levels, helping to reduce the overall cost of transitioning to solar power. These programs encourage the adoption of renewable energy by providing direct financial benefits to taxpayers who invest in qualifying systems.
Massachusetts Residential Clean Energy Credit
Massachusetts provides a personal income tax credit for homeowners who install renewable energy systems. This credit is available to owners or tenants of a residential property who occupy it as their principal residence within the state. Vacation or summer homes do not qualify for this incentive.
The credit is 15% of the net expenditure for the solar system, up to a maximum of $1,000. The “net expenditure” is the total cost of the system after subtracting any rebates, grants, or federal credits received. To be eligible, the system must be new, expected to last at least five years, and meet certain quality standards. This credit can only be claimed once for a given principal residence, but a homeowner may claim it again for a new system at their next primary residence.
This state credit has a carryforward provision. If the credit amount exceeds the taxpayer’s total state income tax liability for that year, the excess credit is not lost. The remaining balance can be carried forward and applied against state income tax liability for the next three tax years.
Federal Residential Clean Energy Credit
Homeowners can also benefit from the federal Residential Clean Energy Credit. This program allows taxpayers to claim a credit for a percentage of the cost of new, qualified clean energy property. Unlike the Massachusetts credit, this federal incentive can be claimed for systems installed on a primary or secondary residence.
The credit amount is 30% of the total system cost, and there is no maximum dollar limit. This percentage is scheduled to remain at 30% for property placed in service through 2032. Qualifying costs include solar panels, inverters, mounting equipment, installation labor, and battery storage technology with a capacity of 3 kilowatt-hours (kWh) or more.
Similar to the state program, the federal credit has a carryforward provision. If the credit is greater than the taxpayer’s federal income tax liability, the unused portion can be carried forward to reduce tax liability in future years.
How to Claim the Solar Tax Credits
Before filing for either the state or federal solar credit, homeowners must gather specific documentation. This includes the final invoice from the installer detailing the total system cost, a breakdown of expenses, and the date the system was placed in service. These documents provide the figures needed to calculate the credit amounts and serve as proof of the expenditure.
To claim the Massachusetts credit, taxpayers must complete Schedule EC, Residential Energy Credit, and file it with their state income tax return (Form 1 or Form 1-NR/PY). On Schedule EC, you will enter the total system cost and then deduct any federal credits or rebates to determine the net expenditure. The form guides you to calculate 15% of this expenditure and applies the $1,000 maximum limit.
For the federal credit, taxpayers must use IRS Form 5695, Residential Energy Credits, and submit it with the federal Form 1040. Part I of Form 5695 is where you will enter the total qualified costs for your solar property, including labor and eligible battery storage. The form then directs you to multiply this total cost by 30% to calculate your credit, which is transferred to Schedule 3 (Form 1040).
Additional Massachusetts Solar Incentives
Beyond tax credits, Massachusetts offers other financial incentives that lower the cost of going solar. The Solar Massachusetts Renewable Target (SMART) program, a performance-based incentive that provided monthly payments to solar system owners, is no longer accepting new applications. Existing participants continue to receive benefits, but it is not an available incentive for new installations.
Homeowners also benefit from an upfront savings through a state sales tax exemption. Solar panel systems are exempt from the 6.25% Massachusetts sales tax, which applies to both the equipment and installation costs. This exemption directly reduces the initial purchase price.
The state also provides a property tax exemption. While a solar array increases a home’s value, this added value is exempt from local property taxes for 20 years. This benefit ensures that the financial gains from solar energy are not offset by higher annual property tax payments.