Indiana Solar Incentives and Rebates Guide
Key Takeaways
- The midwestern state of Indiana has plenty of financial incentives to take advantage of—many of which are funded by the U.S. government.
- Federal incentives such as the federal solar tax credit offer residents a 30% tax credit through the year 2032.
- Local programs include sustainable development initiatives for the City of Bloomington developers.
- Net metering offers Indiana residents a chance to use excess generated electricity to their advantage and reduce their utility bills.
Indiana Solar Rebates & Incentives
Too often, homeowners and businesses shy away from energy improvements for fear of increased costs. Beyond the installation price tag are higher property taxes and maintenance costs.
But the good news is that Indiana offers renewable energy property tax exemptions, as well as sales tax exemptions and use tax exemptions for electrical generating equipment. As a result, it is much more affordable to install renewable energy systems that generate electricity in a more environmentally friendly way.
Although these programs may include stipulations, they make it a lot easier for residents and businesses to go solar in Indiana.
Renewable Energy Property Tax Exemption
At the state level, the Indiana Department of Local Government Finance offers a property tax incentive to help Indiana homeowners and mobile-home owners who are interested in installing new solar panel systems on their property.
Normally, when property owners make improvements on their property, their taxes increase. But solar energy systems, geothermal heat pumps, and other types of equipment that generate clean energy are exempt from property taxes.
To apply for this incentive, begin by filling out a deduction form on the Indiana government website.
Sales and Use Tax Exemption for Electrical Generating Equipment
Manufacturers and tribal communities take note: This state-offered tax exemption applies to the industrial and tribal government sectors (homeowners would still have to pay sales tax).
This incentive helps offset the costs of tools and machinery involved in producing renewable energy equipment that is used to generate electricity.
Incentive amounts can vary, and there is no maximum limit specified for this solar sales tax exemption. This is good for business.
Local Indiana Solar Incentives
City of Bloomington
For Bloomington solar developers, the city offers sustainable development incentives. Developers can take advantage of these offerings by meeting requirements such as implementing energy efficiency upgrades.
The projects can obtain bonuses, and filing fees are waived. Other fees, such as sewer hook-on and right-of-way excavation permits, are also waived, saving developers money in the long run.
This incentive encourages builders to embrace energy-saving construction while reducing the total cost of their projects. This incentive is considered a Green Building Incentive.
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Federal Incentives
Federal Solar Tax Credit
In addition to state and local incentives, Indiana residents can take advantage of federal incentives and tax credits.
Through the Inflation Reduction Act of 2022, the federal solar tax credit, also known as the investment tax credit (ITC), is offered throughout the country to all U.S. residents who are homeowners. (There are federal solar tax credits for businesses, too.)
This program offers a 30% tax credit on solar systems installed from 2022 through the end of 2032. Homeowners who complete a solar installation in 2033 can obtain a 26% tax credit, and residents who install solar panels on their homes in 2034 will receive a 22% tax credit.
Individuals with large solar installations can take advantage of these savings, too, since this federal government program has no financial limit.
Federal Solar Investment Tax Credit
| Through 2032 | 30% |
|---|---|
| 2033 | 26% |
| 2034 | 22% |
Modified Accelerated Cost-Recovery System (MACRS)
Another federal financial incentive is the Modified Accelerated Cost-Recovery System (MACRS), and it affects the commercial, industrial, and agricultural sectors.
Provided by the U.S. Internal Revenue Service (IRS), MACRS is a method in which a business’ investments in tangible property are recovered, for tax purposes, over a certain period through annual deductions. That period for solar energy systems is five years.
This system can help businesses regain costs associated with property investments.
Energy-Efficient Mortgages
Indiana residents can take advantage of the energy-efficient mortgage program, a federal loan program for homeowners who are either looking to upgrade their current home with energy-efficient equipment or who are seeking to purchase a new home that is energy-efficient.
The mortgage loan program is offered through the Federal Housing Authority and can be a great help for homeowners who might have trouble securing a mortgage.
The loan program does come with some stipulations, however. To be eligible for this loan, the loan itself cannot exceed the overall expected savings that results from these energy efficiency improvements.
To help strengthen the program’s reach, the government-backed ENERGY STAR has partnered with qualified lenders. This partnership allows for dual promotion and helps lenders achieve credibility by association with ENERGY STAR.
Business Energy Tax Investment Credit (ITC)
The federal government provides a Business Energy Tax Investment Credit that encourages businesses, nonprofits, and local and tribal governments to install renewable energy projects, like solar panel systems.
When they do, they receive credits that can be even increased if the project is taking place in what is considered a low-income residential building.
This tax credit is similar to the loan program for homeowners in that it is a federally funded program that aims to get more builders and developers to include energy-saving measures within their building projects.
However, unlike the mortgages that are geared toward homeowners, this tax investment credit program is for those in the agricultural, commercial, industrial, and cooperative utilities industries.
Rural Energy for America Program Renewable Energy Systems & Energy Efficiency Improvement Guaranteed Loans & Grants
According to the Indiana State Department of Agriculture, Indiana is one of the top ten largest agricultural exporters in the United States. The federal Rural Energy for America Program Renewable Energy Systems & Energy Efficiency Improvement Guaranteed Loans & Grants program is targeted toward agricultural producers looking to transition to clean energy, improve their energy efficiency, and save money.
Small businesses, agricultural producers, electric utilities, cooperatives, and tribal businesses can get loan financing and grant funding through this program to purchase solar panels and install them (along with other clean energy systems) and make energy-efficiency upgrades.
Indiana Net Metering
Net metering is a great way for Indiana residents to make their energy work for them. This incentive involves using the excess power of rooftop solar panels to lower your electric bills.
Here’s how it works: Whenever your solar power system generates more energy than you use, you are not charged. This can happen on bright, sunny days. Later, when you are using your electricity, you are charged at your normal rate. The excess energy generated earlier is sent back to the power grid, and you are credited for it.
According to the Database of State Incentives for Renewables & Efficiency (DSIRE), most Indiana-based utilities participate in net metering, including Indianapolis Power & Light Co, Indiana Michigan Power Co, Northern Indiana Public Service Company (NIPSCO), and Southern Indiana Power.
DSIRE states: “NEG during a billing period is credited to the customer’s next monthly bill in the form of a kilowatt-hour (kWh) credit at the retail rate. NEG credits roll over indefinitely. If a customer elects to cease net metering, any unused credit will revert to the utility.” Monthly rollover credits can greatly reduce electricity costs for solar owners.
This is another way that installing solar panels pays off.
Impact of Payback Period on Your Solar Panel System
Between high upfront price tags and installation costs, energy-efficient-minded residents may wonder when they will see a return on their solar investment. Regardless of the incentives you are eligible for, it’s important to know when you might pay off your solar system cost in full.
Knowing how long it will take can also help you make the decision to switch to solar. Here’s how a payback period for a solar energy system works.
A payback period for any investment is the length of time it takes for the savings generated by the investment to match its cost. Federal, state, and local solar incentives help reduce this time.
Payback periods ultimately depend on the size of the installation and local electricity rates. You can determine your individual payback period by considering factors such as which incentives you are eligible for, the solar system’s cost of purchase and installation, and your average local electricity rates (and net metering participation).
In Indiana, the typical payback period is 9 to 15 years.
| Typical 6kW solar system installation cost | $17,700 |
|---|---|
| 30% Federal Tax Credit | $5,310 |
| Total Cost After Incentives Not including local incentives, which vary | $12,390 |
| Assumed Electricity Produced by a 6kW Solar System in Indiana | 8,456 kWh |
| Annual Electricity Cost Reduced or Offset Assuming 100% utilization by the home | $1,193 |
| Sample Payback Period | 10 years |
Sources: https://www.nrel.gov/docs/fy22osti/83586.pdf, https://globalsolaratlas.info/map (Indianapolis); https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a
Conclusion
Indiana residents, business owners, and agricultural producers have no shortage of financial opportunities to take advantage of when it comes to lowering their solar panel installation costs and their energy costs.
Between locally offered rebates and loans, and federal and state programs, Indiana residents can have an easier time installing a solar power system and making their energy efficiency improvements a reality.