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.
Moreover, solar prices 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.
1. 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.
Moreover, 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.
2. 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.
3. New Federal Solar ITC Expiration Dates
Buy and install a new solar energy system in Colorado on or before December 31, 2022, and you can qualify for the 26% ITC. However, you may only be eligible for a 22% tax credit if you do that anytime between January 01 and December 31, 2023.
Any home solar installations made after December 31, 2023, will no longer have tax credits. That's unless Congress decides to extend the program again.
It's worthy to note that tax credits for commercial installations have similar deadlines. However, unlike residential projects, the solar ITC for businesses continues after 2023. For commercial systems placed in service by 2024 and onward, the tax credit goes down to 10%.
4. Basic Federal Solar ITC Eligibility Requirements
The latest Internal Revenue Service (IRS) data shows that the US is home to over 140 million taxpayers. So, if you pay taxes to the federal government yourself, you may be eligible for the solar ITC.
In addition, you must install the solar energy system in your primary or secondary home in the US. The panels themselves must be new, or at the very least, you must be the first one to use them. Moreover, you need to own them to qualify for the federal solar ITC.
Owning the panels means you bought them with cash or are paying for them through solar financing. The latter can take the form of a solar loan, personal loan, or home improvement loan. Either way, as long as you need to pay it back, it likely won't affect your ITC eligibility.
For the same reason, leased solar energy systems do not qualify for the credit. After all, a lease is similar to renting the system, meaning someone else owns it.
Another requirement is to place the solar energy system in service during the year. That means it needs to start producing electricity for you before you apply for the tax credit.
So if you buy, install, and use the solar panels within 2022, you may qualify for the 26% credit. However, if you wait until 2023 to use them, you may only get the 22% credit, even if you bought and installed them in 2022.
5. Federal Solar ITC Application Process
Complete the IRS Form 5695 when filing your taxes to receive your federal solar tax credit. Also, be sure to provide your renewable energy credit details when filling out your Form 1040.
If you use tax filing software, it may automatically add the credit to your form. However, if a tax processor or accountant files your taxes for you, let them know you bought solar panels.
6. Colorado Sales and Use Tax Exemption
A sales tax is a tax imposed on purchased goods and services. In most cases, it applies to almost anything you can buy.
By contrast, a use tax is a tax on the consumption, storage, or use of an item that didn't have a sales tax. An example of when you might have to pay this tax is if you bought something and didn't pay a sales tax for it. Another is if you purchase an item outside your taxing jurisdiction but use it in your state.
Note that The Centennial State charges a 2.9% sales and use tax. So, if not for the Colorado State Sales and Use Tax Exemption, you'd have to pay taxes when you buy and use solar panels.
However, you don't have to worry about those other taxes, thanks to that incentive. Thus, it helps reduce the upfront costs of your solar energy system installation.
Colorado's exemption applies to all the components used in producing solar energy. Moreover, solar thermal systems are exempt from the sales and use tax.
7. Colorado State Property Tax Exemption
A property tax is a tax on an owned property, such as real estate and tangible personal property. The taxable amount usually depends on the owned property's value.
The collected tax payments, in turn, go toward funding projects benefitting the community. That may include improving local water systems, sewer infrastructures, and public roads.
Colorado's residential property taxes are among the lowest in the US, averaging only 0.49%. That's the third-lowest throughout the country. Moreover, it's only half of the national average rate, which sits at 1.07%.
Still, 0.49% can be substantial if you add something as valuable as a solar energy system.
Fortunately, you don't have to pay a higher property tax if you install solar panels in your Colorado home. That's thanks to the state's Property Tax Exemption for Residential Renewable Energy Equipment. With this, you can exclude your solar energy system's value from your home's valuation.
Plus, a solar energy system could help boost your home's value. On average, a solar panel installation increases the value of a Colorado home by around 4%. So, not only does it help you save on taxes, but it may also allow you to build more equity in your home.
8. Colorado State Net Metering Program
Net metering lets solar energy system owners send electricity they don't use back to the grid. It's a billing mechanism crediting owners for the unused electricity they add to the grid.
For instance, let's say your panels generate more electricity than what you use during the day. You can export that surplus power back to the grid if you're on a net metering program. In that case, your electricity meter should then run backward.
As a result, your utility company only bills you for your net electricity use. That then gives you credits you can use for your future energy consumption. Thus, net metering gives you the chance to reduce your future electric bills.
Luckily, Colorado has a net metering policy in place. For example, you may be eligible for net metering if you're an Xcel Energy customer. The same is true if you have an account with Black Hills Energy or Colorado Springs Utilities.
9. Purchasing Power Agreement (PPA) in Colorado
A solar PPA is an agreement between a developer and a host customer. The former designs, finances, and installs a solar energy system on the host's property. The power generated by the system then gets sold to the host at a fixed rate.
The rate the host customer pays, in turn, is often lower than the local utility's retail rate. Moreover, the host pays little to nothing for the system's installation. The customer doesn't have to cover the maintenance costs of the panels, either.
At the end of the agreement, the host can extend the PPA or buy the system from the developer. The customer can also have the system removed from their property.
So, with a PPA, you can have a solar energy system installed in your home at little to no cost. You also benefit from the reduced electricity rate.
The drawback to a solar PPA is that you don't own the system; thus, you can't qualify for the federal solar ITC.
10. Incentives From Local Colorado Utilities
Some Colorado utility providers offer solar rebates that work much like cash-back credits. The exact mechanics differ, but in general, it's on a per-watt or per-kilowatt (kW) basis.
For example, if you're a Colorado Springs Utilities customer, you can get a rebate of $0.10 per watt. You can then cash out your credits by the end of the calendar year and get a credit on your next bill. You can also roll over excess credits so that you can reduce your future electricity bills.
Holy Cross Energy also offers members a solar rebate on a per-kW basis. For the first 6 kW a system generates, the incentive is $250/kW. After the first 6 kW up to 25 kW, the offer drops to $100/kW.
The municipal utility, Fort Collins Utilities (FCU), also offers a rebate at a rate of $250/kW. The maximum incentive home solar energy system owners can get is $1,000. Like the federal solar ITC, FCU also requires the homeowner to own the system itself.
While not a utility itself, Energy Smart Colorado works with the state's providers. The non-profit organization partnered up with them to make solar more affordable. The result is a long list of rebates ranging from $400 to $2,500, depending on your location.
11. Local Solar Grant Programs
Solar grants are programs designed to help consumers who wish to go solar but may not have the capacity to do so.
Grants provide funding for the installation of solar energy systems without requiring repayment. However, they often have income-based eligibility requirements.
The City of Boulder is one of the places in Colorado where solar grants are available. Residents with low-to-moderate income may apply for the program. The maximum amount qualified homeowners can get is $8,000.
12. Local Solar Tax Rebates
A traditional tax rebate is an amount of money paid back to taxpayers who paid too much tax. It's a cash-back given to you by your taxing jurisdiction.
That's what a solar tax rebate is, although it's only for solar-related expenses. A perfect example is the City of Boulder's tax rebates on solar installations. They apply to sales and use taxes paid on solar electric (and hot water) systems.
The qualifying taxes, in turn, can be for the materials of the installed solar energy system. The same goes for the taxes paid while securing the permits for the system's installation.
If you live in Boulder and qualify, you may rebate approximately 15% of the sales and use tax you paid.
Consider Going Solar in Colorado Today
Keep in mind that the average solar panel installation cost has shrunk by about 70% over the past decade. That should be enough to prompt you to make the switch, even if there's no Colorado solar tax credit.
Besides, you may qualify for the federal ITC and the Colorado tax exemptions, anyway. Finally, don't forget the solar rebates and net metering offered in the state. All those programs can help you enjoy solar for less.
If you're ready to harness the sun's power in Colorado, Skyline Solar can help. Call us today, and we'll happily give you a quote!