Massachusetts Tax Credits and Incentives for Solar Panels

If you install solar panels on your home in Massachusetts, you can stack several state-level tax credits and incentives: a state income tax credit worth 15% of system cost up to $1,000, a 6.25% sales tax exemption on equipment, a 20-year property tax exemption on the value the system adds to your home, fixed per-kilowatt-hour SMART program payments for 20 years, and net metering bill credits for excess power you send to the grid. The federal Residential Clean Energy Credit that covered 30% of installation costs has expired for expenditures made after December 31, 2025, so Massachusetts solar panel tax credits now carry more of the weight for anyone installing in 2026.¹

The Massachusetts Solar and Wind Energy Credit

The core state incentive is a non-refundable income tax credit equal to 15% of your net expenditure on a qualifying system, capped at $1,000.² Once your total cost reaches roughly $6,667, you’ve hit the cap. Anything spent beyond that doesn’t increase the credit.

To qualify, you must be an owner or tenant of residential property in Massachusetts, the system must be installed on your principal residence, and you cannot be claimed as a dependent on someone else’s return.³ Both equipment and installation labor count toward the expenditure.

Because the credit is non-refundable, it can only bring your state tax bill down to zero. If you owe $600 in state tax and earn the full $1,000 credit, you use $600 this year and carry the remaining $400 forward. You have three years of carry-forward, which means four filing seasons to use the full amount.²

What Counts as Net Expenditure

State regulation defines net expenditure as the purchase price plus installation cost, reduced by any credits received under the Internal Revenue Code and any HUD grants or rebates.³ For 2026 installations there is no federal credit to subtract, so your net expenditure is simply the system cost minus any HUD-related grants.

If you installed in 2025 and claimed the federal credit, you must reduce net expenditure by the federal credit amount before applying 15%. That distinction matters if you’re carrying forward a state credit tied to a prior-year installation.

The Federal Credit Is Gone for 2026 Installations

The federal Residential Clean Energy Credit under Section 25D terminated for any expenditures made after December 31, 2025.¹ A $30,000 system that would have produced a $9,000 federal credit in 2025 produces zero federal credit in 2026. No timing or structuring changes that.

Two things are still possible on the federal side. If you paid for and installed a system in 2025 or earlier, you can claim the credit on that year’s return using Form 5695.⁴ And if you claimed the credit in a prior year but couldn’t use it all because your tax liability was too low, the unused portion carries forward. File Form 5695 even in a year with no new installation to apply that carry-forward.⁵

Sales Tax Exemption on Solar Equipment

Massachusetts exempts solar energy equipment from the state’s 6.25% sales tax when the system serves as a primary or auxiliary power source for an individual’s principal residence.⁶ The exemption covers panels, inverters, racking, and related components.

On a $25,000 installation, that’s roughly $1,560 in savings. It applies at the point of sale, so there’s no form or reimbursement process. Your installer should already be pricing qualifying equipment without sales tax. If an invoice for your primary residence shows sales tax on solar equipment, raise it before you pay.

20-Year Property Tax Exemption

Under Clause 45 of the state property tax law, any value a solar system adds to your home is exempt from local property taxation for 20 years.⁷ Normally a permanent improvement raises your assessed value and your annual bill. This exemption blocks that increase for two decades.

The exemption applies to residential systems that meet at least one of these conditions:⁸

The system produces no more than 125% of the annual electricity needs of the property.
The system is 25 kilowatts or less in capacity, verified through DOER incentive program documentation or utility permission-to-operate paperwork.
The system owner has a payment-in-lieu-of-taxes (PILOT) agreement with the municipality.

Most residential installations clear the 25 kW capacity test easily. The 20-year window can be extended if the owner and municipality agree to a longer term in writing.⁷ Without that written extension, the exemption ends at 20 years and the system’s value may begin affecting your assessment.

SMART 3.0 Performance Payments

The Solar Massachusetts Renewable Target program pays residential solar owners a fixed rate for every kilowatt-hour their panels produce. For 2026, the flat rate for residential systems of 25 kW or less is $0.03 per kWh, with low-income households receiving $0.06 per kWh.⁹ The tariff term runs 20 years, locking in your rate for the full contract.

One trade-off: all renewable energy certificates generated by SMART-qualified systems go to the utility your system interconnects with. You give up REC ownership in exchange for the tariff payments, which means you can’t separately sell the RECs or make environmental claims about your solar generation.¹⁰

SMART payments are separate from net metering. You receive both.

Net Metering Credits

When your panels produce more electricity than your home uses, the excess flows to the grid and your utility issues a credit on your bill. Massachusetts net metering credits can offset the delivery, supply, and customer charge portions of your bill, potentially bringing it to zero.¹¹

The credits don’t offset everything. Fixed customer charges, demand charges, energy efficiency surcharges, and the net metering recovery surcharge are excluded from the credit calculation.¹¹ Residential systems up to 60 kW qualify for standard net metering, which covers essentially all home installations.

How the Incentives Themselves Are Taxed

Not every incentive is tax-free. The IRS has indicated that state energy efficiency incentives that don’t qualify as a rebate or purchase-price adjustment could be included in gross income for federal tax purposes.¹ SMART payments compensate you for electricity your system produces over 20 years rather than discounting the purchase price, which makes them more likely to be treated as taxable income. A tax professional should guide reporting.

Net metering credits are treated differently. IRS guidance notes that utility payments for clean energy sold back to the grid, including net metering credits, do not affect your qualified expenses for the federal credit, which signals they are generally viewed as bill reductions for typical residential systems rather than income.¹

The sales tax and property tax exemptions are not income events. They reduce costs you’d otherwise owe and create no federal reporting obligation.

Battery Storage

Pairing a battery with your solar system was financially stronger when the federal 30% credit applied. That credit covered batteries with a capacity of at least 3 kilowatt-hours, including standalone batteries without new panels.¹ With that credit expired for 2026 expenditures, there’s no federal tax incentive specifically for residential battery storage.

Massachusetts does provide some support. SMART 3.0 adds a $0.04/kWh energy storage adder on top of the base incentive rate for systems co-located with storage.⁹ The Clause 45 property tax exemption also covers solar systems co-located with energy storage.⁷

How to Claim the State Credit

Claim the Massachusetts solar credit by completing Schedule EC (Solar and Wind Energy Credit) and attaching it to your Form 1 or Form 1-NR/PY. Leaving Schedule EC off causes the credit to be disallowed and your tax recalculated.²

The schedule asks for total system cost on Line 1, subtracts HUD grants or rebates on Line 2, produces net expenditure on Line 3, applies 15%, and compares the result to the $1,000 cap. Lines 9 through 11 handle any carry-forward from a prior year.²

Hold on to installation invoices, proof of payment, and any documentation of HUD-related grants. The Department of Revenue can request these records to verify the credit. If you claimed the federal credit in a prior year and are still carrying unused amounts forward federally, keep your completed Form 5695 on file as well, since the state may cross-reference it when reviewing net expenditure for a prior-year installation.³

1
Internal Revenue Service. Residential Clean Energy Credit
2
Mass.gov. Schedule EC Solar and Wind Energy Credit 2025
3
Massachusetts Department of Revenue. 830 CMR 62.6.1 Residential Energy Credit
4
Office of the Law Revision Counsel. 26 USC 25D Residential Clean Energy Credit
5
Internal Revenue Service. 2025 Instructions for Form 5695
6
Mass.gov. Massachusetts General Laws c.64H Section 6
7
General Court of Massachusetts. Massachusetts General Laws Part I, Title IX, Chapter 59, Section 5
8
Commonwealth of Massachusetts. Ask DLS Solar Abatement Applications
9
Mass.gov. SMART 3.0 Program Details
10
Mass.gov. Massachusetts SMART Program Municipalities QA
11
Mass.gov. Net Metering Guide