Residential Solar
Home Solar System Sales Tax Exemption
There is no state sales tax on solar panel systems up to 500 kW, whether for residential, commercial, or agricultural projects. This tax exemption covers solar water heaters and batteries as well.
A typical 5-kW system in Vermont costs about $17,000 according to Energy Sage. Given Vermont’s 6% sales tax, the tax exemption would save you $1,020 on a project of this size.
Renewable Energy Systems Property Tax Exemption
There is no property tax for solar energy systems with a capacity of less than 50 kW, for Vermont residents. Various studies show that solar panels increase home value. If that increase is $15,000 (as per one multi-state study) and your town tax rate is 2%, this exemption is worth $300.
Note that this property tax exemption does not apply to solar panel systems with a capacity > 50 kW. There is a uniform capacity tax of $4 per kW for these systems (for a 100-kW system, $400 in annual property taxes). But most residential solar capacity is well below that 50 kW threshold.
Federal Solar Tax Credit
The Inflation Reduction Act, passed in August 2022, increases the tax credit for residential solar systems to 30%, and extends the program through December 31, 2034, creating a decade of predictable tax savings. (The bill renames the Investment Tax Credit to a more obvious, “Residential Clean Energy Credit”). Costs – equipment and installation – incurred from the beginning of 2022 to the end of 2032 qualify for a 30% tax credit. The credit falls to 26% in 2033 and 22% in 2034. If you owe less than the credited amount, it can roll over to the next tax period.
In addition, the 30% tax credit now extends to leased or purchased battery storage systems, even if those systems are added after the solar panels have been installed on the roof. This solar battery storage tax credit can significantly reduce the cost of adding storage for energy security and backup power. The tax break for batteries applies to expenditures made starting in 2023.
Customers who lease their solar panels or have a power purchase agreement (PPA) cannot take advantage of this credit because they don’t own their panels.
Net-Metering
Net metering allows customers to generate and use power at the same time. If a net-metered customer uses more electricity than they generate, their bill for the month will consist solely of the difference. If a net-metered customer generates more electricity than they use, their bill for the month will be covered, and a credit for the excess is applied to the customer’s account. This “banked” credit can be applied to subsequent bills for the next 12 months. After 12 months, unused credit expires.
It is important to note that net-metering customers must still pay customer-service charges and other fees associated with their electric bill.
Sources: Norwich Energy Committee; thisoldhouse.com
Updated February 2024