Colorado Solar Tax Credits, Incentives and Rebates (2024) - MarketWatch

Colorado Solar Tax Credits, Incentives and Rebates (2024)

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Colorado is one of the sunniest states in the country and ranks 13th for installed solar capacity nationwide. Abundant sunshine makes solar panels more productive, which can increase your electricity bill savings. Colorado also offers solar incentives such as tax exemptions and rebates for home solar systems, helping to lower the cost of going solar.

The solar Investment Tax Credit(ITC) allows homeowners to claim 30% of their total solar system cost as a federal tax credit, which you can use to lower your federal income tax burden. You can claim the credit on your annual tax filing for the year you install solar panels. The credit schedule was recently renewed by the Inflation Reduction Act of 2022.

It is important to note that only the legal owner of the photovoltaic (PV) system can claim the tax credit. So while you can claim the benefit if you purchase a solar system with cash or a loan, it will go to the solar provider if you sign a lease or power purchase agreement (PPA).

The average cost of a solar installation in Colorado is $2.82 per watt or $16,920 for a 6 kilowatt (kW) solar panel system. A solar energy system with an installed price of $16,920 would qualify for a federal tax credit of $5,076, reducing the cost to $11,844. Homeowners can combine the federal tax credit with local incentives in Colorado to save even more money.

The ITC is available for primary and secondary residences, including vacation homes, but not for rental homes and other investment properties. Assuming your solar PV system is eligible, you must fill IRS Form 5695 and add it to Schedule 3 and Form 1099.

You can claim the solar tax credit on your own, we recommend reaching out to a professional tax advisor if you have any questions.

Colorado offers a sales tax exemption and a property tax exemption for solar power systems. Depending on the location of your property within the Centennial State, you may also qualify for solar rebates.

Incentive value: Exempts the state’s 2.9% sales and use tax

Frequency: Applied once at the time of purchase

Colorado introduced a state sales tax exemption for renewable energy systems in July 2006, which includes heat pumps and lithium-ion batteries. As a result, you will not get charged the state’s 2.9% sales tax when purchasing solar panels or other eligible technologies.

The sales tax exemption is offered as an immediate discount for Colorado homeowners who switch to solar. Assume you pay $16,000 for a rooftop solar system. With the exemption, a 2.9% sales tax of $464 is exempt from your purchase.

Incentive value: Exempts increases to your local property taxes

Frequency: Ongoing

Colorado residents also get a property tax exemption for renewable energy systems. If you add a solar panel system to your home, your municipality will not tax the resulting increase in property value.

Assume you own a $450,000 home in Colorado. If you live in a municipality with a 0.6% property tax rate, you would owe $2,700. If you decide to go solar and the system increases your home value to $475,000, your annual property taxes would remain at $2,700. Without the exemption, the $25,000 property value increase from installing solar panels would add $150 to your annual taxes.

Incentive value: Low-interest loans up to $75,000

Frequency: One-time

The Colorado RENU program offers low-interest financing options for various home upgrades, including solar panel systems and battery storage. The program offers loans of up to $75,000 with a repayment period of 20 years. If you qualify for a RENU Loan, you can implement energy efficiency measures and solar panels at zero upfront cost and pay off the loan with utility bill savings.

To qualify for a solar loan from Colorado RENU, you must use an approved contractor to install your PV system. The program is funded by the Colorado Clean Energy Fund, in partnership with local credit unions.

Based on our research, Colorado has two solar incentive programs that target specific locations throughout the state. You can contact your local utility or municipality to learn more about other incentive programs. In addition to solar incentive programs, Colorado also has opportunities for community solar.

Incentive value: $100 to $250 per kilowatt of installed solar capacity or $250 to $500 per kilowatt of energy storage

Frequency: One-time

Holy Cross Energy (HCE) is an electric cooperative that serves more than 45,000 consumers in Western Colorado. It offers a renewable energy incentive program for technologies that include solar PV systems and energy storage. The incentive rates are summarized below:

The program offers rebates of $250 per kilowatt of installed capacity for systems up to 6 kW, or $100 per kilowatt for systems sized six to 25 kW. It also offers $250 to $500 per kilowatt for solar batteries up to 25 kW in size, depending on your participation in the Power+ Distribution Flexibility Program.

Incentive value: $500 to $2,500

Frequency: One-time

Energy Smart Colorado is a rebate program that covers several types of energy efficiency measures and renewable energy systems. Depending on where you live, homeowners can apply for rebates that range from $500 to $2,500 for purchasing solar equipment and making home energy efficiency upgrades.

Energy Smart Colorado offers solar rebates through sub-programs that target specific regions. It’s not a statewide program. Generally, it offers rebates in Boulder County, Eagle County, Roaring Fork Valley and Summit County.

Rebate programs change constantly. You can find updated information on the Energy Smart Colorado website.

Colorado has a statewide net metering policy that applies to all electric companies except municipal utilities with less than 5,000 customers. All home solar systems up to 10 kW can participate in net metering, which allows you to send excess energy your panels generate to the power grid in exchange for billing credits. In Colorado, credits match the retail price of electricity.

If there is a month where your net metering credit exceeds your consumption, you can roll over unused energy credits to the next month indefinitely.

There are many electric utility companies in Colorado, and net metering requirements vary by provider. Electric companies typically only allow grid interconnection if your solar system has a smart inverter with IEEE 1547 and UL 1741 certifications. The best way to make sure you meet the interconnection requirements is by opting for a professional solar system installation. DIY solar systems are not eligible for grid interconnection and net metering programs.

The Xcel Energy Solar Rewards Program and the Black Hills Energy Solar Program are two of the largest net metering programs in Colorado.

A 6 kW solar system typically costs around $16,920 in Colorado, which drops to $11,844 after you subtract the 30% federal tax credit. You can lower costs even more with other state tax incentives, like sales and property tax exemptions.

Assuming a solar system size of 6 kW, you can expect to generate more than 9,600 kilowatt-hours (kWh) of energy per year. With an average tariff of 13.56 cents per kWh, you could save around $1,302 on annual energy bills. You can apply those savings to pay off your system over time.

Considering the average installation cost and energy savings, the typical system payback period in Colorado is 11.2 years. While this may seem like a long time, keep in mind that the best solar panels come with 25-year warranty coverage. This means you can enjoy energy savings for over a decade after you pay off your panels. And if you live in a region with solar rebate programs, you can achieve an even shorter payback period.

Colorado is a sunny state with a handful of solar incentives, including the federal tax credit, property and sales tax exemptions, and net metering programs. You may also qualify for solar grant programs or rebates based on your location. Plus, you can combine state incentives with the federal tax credit to save on your solar project. Although it is a common misconception that snow and cold weather can disrupt solar productivity, as long as sun can properly reach the face of the panels they will operate at normal capacity.

Whether you live in Denver, Colorado Springs, Fort Collins or elsewhere, going solar can be worth it in Colorado. The best solar companies will ensure your PV system is sized according to your home energy needs, helping to ensure your panels generate enough energy to offset your electricity bills. Solar installers should also have experience with net metering requirements and can help you apply for solar incentive programs across the state.

Colorado does not have a statewide solar rebate, but there are small-scale programs that offer rebates in certain locations. Two prominent programs include Holy Cross Energy rebates and the Energy Smart Colorado credit.

No. Colorado does not offer a state tax credit for solar panels, but it does provide a sales tax exemption and property tax exemption.

Based on our research, you can expect to pay $2.82 per watt of installed capacity in Colorado. This means a 6 kW system would cost $16,920 and a 10 kW would cost $28,200.

We closely evaluate solar installation companies with a focus on the factors most important to homeowners like you. We based our solar company methodology on input from multiple homeowner surveys, discussions with industry experts and research into the renewable energy market. Our review process involves assessing each company on the following criteria, which we then use to calculate a rating out of 5 stars.

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