North Carolina Tax Credit for Solar Panels

The North Carolina state tax credit for residential solar installations expired at the end of 2015 and is no longer available. However, significant financial incentives remain accessible to North Carolinians, with the primary benefit coming from a federal tax credit program. This article covers the details of the federal incentive, how to claim it, and other state programs that help offset solar energy system costs.

The Federal Solar Tax Credit for North Carolina Residents

The primary financial incentive for homeowners is the federal Residential Clean Energy Credit. This allows taxpayers to reduce their federal income tax liability by 30% of the total cost of a new solar energy system. There is no maximum limit on the amount of the credit, and under current law, it is scheduled to be available through 2032.

You must own your home to qualify for this credit, as renters are not eligible. The credit can be applied to your primary residence as well as a secondary home, such as a vacation house, as long as you live in it for part of the year. However, the credit cannot be claimed for systems installed on rental properties that you do not personally use as a residence.

Qualifying expenses are comprehensive, covering the full scope of a solar installation project. These costs include the solar panels or modules themselves, inverters, wiring, and mounting equipment. All labor costs for on-site preparation, assembly, and original installation are also included, as is the cost of energy storage devices, or batteries, that have a capacity of 3 kilowatt-hours (kWh) or more.

Information and Forms Needed for the Federal Credit

To claim the Residential Clean Energy Credit, you must gather all necessary documentation. You will need the total gross cost of the system, which should encompass all qualifying expenses like panels, inverters, batteries, and all associated labor fees. You will also need the date the system was placed in service, which is the date the installation was completed and made operational, as well as the property address.

The central document for calculating this credit is IRS Form 5695, Residential Energy Credits. You should always download the most current version of this form directly from the IRS website to ensure you are using the correct tax year form and instructions. When completing Form 5695, you will enter the total of your qualified solar electric property costs on the designated line. The form then guides you through the calculation, where you multiply your total costs by the 30% credit rate to determine your final credit amount.

How to Claim the Federal Credit on Your Tax Return

Once you have calculated your credit amount using Form 5695, you transfer this figure to your main tax return. The final credit amount is carried over to Schedule 3 (Form 1040), Additional Credits and Payments.

After transferring the credit amount, you must attach the completed Form 5695 to your Form 1040 when you file your taxes. The credit is nonrefundable, which means it can reduce your tax liability to zero, but you will not receive any of it back as a refund beyond that point.

If your tax credit is greater than your tax liability for the year, the unused portion of the credit can be carried forward. This allows you to apply the remaining credit to reduce your tax liability in future years, ensuring you can benefit from the full value of the credit over time.

Other North Carolina Solar Financial Incentives

Beyond the federal tax credit, North Carolina residents have access to other financial incentives that can make going solar more affordable.

• Utility Rebates: Several local utility companies offer rebate programs to their customers. For instance, Duke Energy offers the PowerPair incentive, a one-time rebate for customers who install a new solar system paired with a battery. The rebate can be up to $9,000, calculated based on the size of the solar and battery storage systems, and you should check with your utility provider for current offerings.
• EnergizeNC: A new statewide program called EnergizeNC is anticipated to launch in late 2025. Funded by the federal “Solar for All” grant, this initiative will focus on making solar and battery storage more accessible for low-income and disadvantaged communities.
• Property Tax Exemption: Normally, any improvement that increases the value of your home also increases your property tax bill. However, under state law, the value added to your home by a solar energy system is exempt from property taxes, meaning you can increase your home’s value without a higher tax obligation.
• Net Metering: North Carolina’s net metering policies allow homeowners with solar systems to send any excess electricity their panels generate back to the utility grid. In return, the utility provides a credit on their monthly electric bill, offsetting the electricity you may need to draw from the grid at night or on cloudy days.