Washington solar sales tax exemption
If you install solar on your home, you don’t need to pay sales tax. Since 2019, solar systems under 100 kilowatts are exempt from both state and local use taxes. This solar sales tax exemption is in effect through 2029 and can allow you to save $1,000 or more when installing rooftop solar panels.
How to estimate your solar sales tax savings
The exact savings depend on the town where you live because the sales tax rate varies between cities. For example, if you live in Longview, Washington, you can save 8.1% on your solar system. On the other hand, Vancouver homeowners can save 8.6% and Tacoma residents a whopping 10.3%.
To calculate your Washington solar tax exemption savings, determine your town’s sales tax rate. If you don’t know it, refer to this sales tax calculator. Then, multiply the price of the solar power system by the tax rate.
If you install a solar system that costs $19,000, just multiply the total cost by the tax rate. Let’s use Olympia, Washington, with a sales tax of 9.5%, as an example.
Olympia, Washington solar tax savings = $19,000 X 0.095 = $1,805
Federal solar tax credit
The federal government offers a 30% tax credit for installing a residential solar energy system on your primary or secondary home. This solar incentive is available across the United States and isn’t exclusively for Washington homeowners. The value of the solar tax credit recently increased due to the climate bill, so solar homeowners are able to save more money.
Determining the value of a solar tax credit
The solar tax credit is calculated based on the total cost of the solar system. All the solar equipment, including the solar panels, inverter, racking system, and even solar batteries, are included in this total, plus labor and permitting costs.
The labor and materials can also qualify for the solar tax credit if you need an electric panel upgrade for a rooftop solar system. However, if you need a new roof, the cost of traditional roofing materials is not included in the tax credit.
To calculate the value, multiply the total system cost by 30%. For example, if a home solar system costs $20,000:
Value of the solar tax credit = $20,000 X 0.3 = $6,000
Total solar system cost = $20,000 – $6,000 = $14,000
A tax credit is a dollar-for-dollar reduction in federal income taxes and is more valuable to the taxpayer than a write-off. For example, a $6,000 tax credit reduces your federal income taxes with the IRS by $6,000.
It is not a refundable tax credit, so if you have no tax liability with the IRS, you will not be able to take advantage of it. However, if you are unable to use the entire tax credit in one year, you can roll it over for future tax years if the solar tax credit is still in effect.
The best way to determine the cost of your solar system is to request a free solar audit from Smart Solar Energy. We customize each installation to the energy needs of the home and your project goals.
Solar tax credit qualifications
To take advantage of the tax credit, you must have a sufficient tax liability with the IRS. We recommend speaking with a tax expert to ensure you qualify. Also, keep in mind that you won’t see the financial savings from the tax credit until you file your taxes. If you install a solar panel system in 2023, you will see the benefit in April 2024 when you file your 2023 taxes with the IRS.
Also, you must own your system and not lease the solar panels to qualify. Therefore, homes with solar leases or power purchase agreements (PPA) cannot claim the tax credit.
Applying the federal solar investment tax credit
To take advantage of this solar incentive, you must complete IRS form 5695 and submit it with your federal tax return for the year the solar system was installed.
Net energy metering in Washington
One of the biggest advantages of solar energy is the utility bill savings, especially in states like Washington with net energy laws. Homeowners that can take advantage of net metering programs in Washington with the electric company can significantly lower their energy bills.
On sunny days, your solar panels will often produce more electricity than your home is consuming. Solar interconnection programs allow you to feed this power to the electric grid, so it doesn’t go to waste.
Under net metering, your local electric company will give you solar credits for the surplus electricity you provide. You then automatically receive those credits back at night or on cloudy days, virtually eliminating your electric bill. If your solar panels produce as much electricity as your home uses, you can eliminate the supply charges on your electricity bills. However, you will still pay the monthly meter fee that is assessed to all homes with electric service, but this is usually under $10 per month, which is just a small fraction of a home energy bill.
How to Take Advantage of Net Metering in Washington
If you install solar panels on your roof and sign up for net metering with your power company, the solar credits expire each year on March 31. That means that you can’t bank your solar credits from year to year, but you can from month to month. Therefore, you can get the most value from your solar system if it is properly sized and not oversized.
If your solar panels produce more electricity than your home needs, some of your credits will expire without providing value to your household. Therefore, proper solar system sizing is critical for maximizing clean energy savings. At Smart Solar Energy, we understand the importance of proper system sizing for the highest return on investment, so we use historical electricity consumption data to help size your system.
Net metering programs in Washington
Washington law requires electric utility companies to compensate customers for the solar energy they supply to the grid.
Clark County PUD provides power to cities, including Tacoma and Battle Ground, Washington. It offers a solar net metering program to customers with systems under 100 kilowatts. To qualify, customers must submit an interconnection application and net metering agreement, and Smart Solar Energy can complete the paperwork on your behalf.
Puget Sound Energy (PSE)
The utility company serves approximately 1.1 million customers in Washington, including all of Kitsap, Skagit, Thurston, and Whatcom counties. PSE also serves sections of Island, King, Kittitas, and Pierce counties, but not Tacoma or Seattle. Its Customer Connected Solar Program helps customers take advantage of net metering.
Seattle City Light
All solar systems that connect to the utility grid in the Seattle City Light service area must have an interconnection agreement. They also allow meter aggregation, allowing you to share your solar credits with another Seattle City Light customer.
Frequently asked questions about Washington solar incentives
Many Washingtonians have questions about how various solar incentive programs work in the state. At Smart Solar Energy, we take pride in sharing helpful information with potential customers, so they can make informed decisions on whether to go solar.
Does Washington State have a solar sales tax exemption?
Yes, if you install solar panels on your home in Washington, you do not need to pay sales tax for this. Washington State sales tax is 6.5%, and then local governments can charge their own tax. Therefore, the exact savings from the solar tax exemption depends on the sales tax rate in your town.
Seattle and Tacoma have some of the highest sales taxes at 10.25% and 10.3%, compared to Tacoma at 8.6%. Therefore, Washington residents that have higher sales tax rates will save more money when installing a solar system compared to residents with lower sales taxes.
Does Washington State have net energy metering?
Yes, the first net metering law for certain renewable energy systems passed in Washington in 1998. Since then, several amendments have been made to net metering laws. As a result, Washington utility companies are required by law to offer net metering programs for solar systems under 100 kilowatts and for specific types of other renewable energy systems in Washington State.
Here is more detailed information for all three investor-owned utility companies in Washington.
- Avista Corporation’s Schedule 63 – Net Metering Option Schedule, Washington – contact: Lisa Garret, (509) 495-7994.
- Pacific Power & Light Company’s Schedule 135 – Direct Net Metering Line: 1-800-625-6078.
- Puget Sound Energy’s Schedule 150, Attachment A – Net Metering Services for Customer-Generator Systems – contact: Jake Wade, (425) 462-3459.
How do I apply for net metering in Washington?
This process varies a bit by the utility company, but it involves completing interconnection agreement paperwork. Then, your utility company will come out to inspect the solar power system and grant interconnection approval. They may need to install a new electric meter that can measure the power you are feeding to the grid.
At Smart Solar Energy, we are dedicated to providing excellent customer service and making the process of going solar easy for our customers. Therefore, we submit all the interconnection paperwork on your behalf.
Will I qualify for the solar tax credit?
This is an important question to ask because the investment tax credit can reduce the cost of going solar by 30%, but not all solar installations and households qualify. For example, the solar system must be installed on a primary or secondary residence. Likewise, you must have a sufficient tax liability with the IRS to take advantage of the credit. However, the tax credit can be applied to future tax years if you can only use some in one year. At Smart Solar Energy, we encourage customers to speak with a tax specialist to determine how to best take advantage of this valuable solar incentive.
How did the Inflation Reduction Act (IRA) impact the federal solar tax credit?
The climate bill was created to slow climate change and promote the use of clean energy in the United States. As a result, it changed the solar tax credit by increasing it to 30% through 2032, starting with solar systems installed in 2022. However, the tax credit will taper down in 2033 to 26% and then decrease to 22% in 2034.
There is also some language in the bill designed to promote domestic solar panel and equipment manufacturing. As a result, domestic solar equipment manufacturing is expected to increase in the near future.
In addition, there are also tax credits available for electric vehicles and some energy-efficient appliances. These programs are an excellent way to use more clean energy and reduce your reliance on fossil fuels. Many solar system owners are also switching to electric vehicles because they can charge their car batteries with clean solar energy.
Going green with Smart Solar Energy
Understanding the Washington solar incentives is helpful when deciding whether to install solar panels on your home. As a trusted solar company serving Oregon and Washington, we are happy to help explain these valuable solar incentives and estimate your likely savings.
We can also help you submit the interconnection paperwork to take advantage of net energy metering in Washington. To get started, schedule a free solar audit.