Understanding taxes and solar savings
Why bill savings aren't taxed
Reducing your electric bill through solar isn't income in the eyes of the IRS, it's simply spending less money. A $1,800 annual bill savings stays exactly $1,800 no matter your tax bracket, unlike wages or investment income which get taxed before you can spend them. The community solar credit rate vs utility rate tool is worth a look if your roof cannot host its own system.
What SREC income actually costs you in taxes
Selling $400 a year in SRECs at a 24% marginal tax rate nets about $304 after tax, a $96 reduction from the pre-tax figure. States like New Jersey, Massachusetts, Maryland, Pennsylvania, and Illinois offer SREC markets where system owners can sell the environmental credits their production generates, and unlike bill savings, this income stream typically is taxable. The US Energy Information Administration's electricity data show how retail rates have moved, which is the starting point for any savings estimate.
Why the federal tax credit is different
The federal Investment Tax Credit reduces your tax liability directly rather than paying you cash, so it isn't treated as taxable income. See the ITC applied calculator for how that credit factors into your overall system economics, or the payback period calculator for how it changes your net cost. For the exact rules on what counts, the IRS instructions for Form 5695 are the source to read.
Comparing pre-tax and after-tax totals
The gap between pre-tax and after-tax figures only matters if you have taxable solar-related income like SREC sales. If your state doesn't offer SRECs, your after-tax and pre-tax totals are identical. See the pre-tax vs post-tax comparison for both figures shown side by side. The production figure behind this estimate comes from the real world vs nameplate output gap calculator, which models output for your location and roof.