Federal and (depending on where you live) state incentives make installing solar panels on the roof of your house a fairly affordable, money-saving home improvement project. Not only will you reduce your monthly energy bills—perhaps even to zilch—but you may also recoup the up-front solar panel installation costs when the time comes to sell your home.

　　Does it make sense for you to shell out thousands of dollars to tap into solar energy? It depends on several factors. As with any major home improvement, it pays to sketch out a budget and research what’s involved.

　　Is solar right for your home?Installing solar panels can be a win-win. Solar panels use the sun’s rays to produce free energy while reducing the amount of carbon and other pollutants emitted by producing energy derived from fossil fuels. Federal tax incentives of up to 30% can defray the up-front installation costs, and many states offer incentives to sweeten the pot.

　　Review a year’s worth of utility bills to determine how much energy your household uses and how much you spend on electricity by looking at the cost per kilowatt hour (kWh). If the rate you pay for electricity is high and/or you use a lot of electricity, installing solar panels may make sense.How long do you want to stay in your home? It takes an average of eight years to break even on your solar panel installation costs, even with incentives. Residential solar systems are designed to last 20 years or more, so it’s a long-lasting home improvement that may add resale value to your home.The age of your roof is important. Before you add a long-lasting addition like a solar panel, you may need to install a new roof, which adds to the overall cost.How big is your roof, what is the design, and what is the slope? Solar panels perform best on sunny, south-facing roofs with a slope of 15 to 40 degrees. Gables, skylights, and other features may reduce the total available area.Shade trees can reduce solar panel viability. How much direct sunlight your roof gets annually determines how much power your system can produce.Consult a solar map. Several mapping services are available to estimate how well-suited your home is for producing solar energy.You may need to upgrade or rewire your electrical panel, which adds to the cost. To go solar, your electrical panel, or breaker box, should provide at least 200-amp service.If you live in a neighborhood governed by a homeowners association, there may be rules about the installation of solar panels. You may need to provide the HOA with a project proposal, sketch, or other documentation to get approval.Cost to install solar panelsThe up-front cost to install solar panels has fallen significantly over the years, but it isn’t cheap. The average U.S. homeowner requires an 11-kilowatt solar panel system to cover their electricity usage. For a system that size, you can expect to spend just over $22,000 in 2024, after federal tax credits. Homeowners who borrow money to cover the costs will pay more because of the interest paid on the loan.

　　The average cost per watt in the U.S. to install solar systems is $2.86 before any incentives are applied. That figure matters, as solar installers often charge per watt for systems. The bigger the system, the less installers charge per watt. How much a system costs you depends on the quality and brand you select, the type of panel, and labor costs. High-quality, highly efficient systems and panels will likely cost more.

　　Pros and cons of going solarReady to let the sun power your home? As with any home improvement project, there are benefits and drawbacks to installing solar panels.

　　The energy produced by your solar system is free, and if your utility uses net metering, it credits you for any excess electricity that is added to the grid, helping you to break even more quickly on the project’s cost.You may be able to get a loan to help pay for the costs of installing solar panels.Panels start working immediately, saving you money as soon as they’re installed.Cons:

　　Solar panel installation can cost tens of thousands of dollars, and any rebates or incentives can take months to arrive.Panels require professional installation.An excessively shady or dusty area could affect the viability of installing a system or how well your panels perform.Federal solar tax incentivesHomeowners are eligible for a 30% federal solar tax credit for photovoltaic systems they install in their primary residences and/or vacation homes through 2032. If you own a rental property and install solar panels, you may be eligible for a business tax credit.

　　A tax credit reduces the amount of income tax you otherwise would pay, dollar for dollar. It is sometimes referred to as an investment tax credit (ITC). The credit applies only to new solar panel systems that are purchased; leased systems don’t qualify.

　　The solar panel system must be turned on during the tax year in which the credit is being claimed. For example, if the panels are installed in December 2024, but the system isn’t inspected and turned on until January 2025, you can’t claim credit until you file your 2025 tax return. The investment tax credit allows for:

　　Solar panel costsLabor costs for onsite preparation, assembly, and installation, including permitting fees, inspection costs, and developer feesBalance-of-systems equipment, including wiring, inverters, and mounting equipmentEnergy storage devicesSales tax To claim the tax credit, homeowners can fill out IRS Form 5695 on their federal tax returns and add the credit value to Schedule C and IRS Form 1040. The credit is nonrefundable—so the credit you receive can’t be more than what you owe in tax—but you can carry forward any excess unused credit and apply it to your future tax liability.

　　State solar tax incentivesIt’s worth looking for savings to defray the costs. States provide a variety of tax incentives; some utilities, installers, and solar equipment manufacturers may also offer rebates.

　　State power agencies or governmental departments post information about solar incentives on their websites. Some states are more generous than others, but all states offer incentives. North Carolina State University’s NC Clean Energy Technology Center website also maintains a nationwide list of state incentives.

　　New York. The Empire State offers net metering, a solar equipment tax credit of 25%, property tax exemption for solar panels, and financing options. The state’s NY-Sun initiative lists other solar incentives as well.Rhode Island. Homeowners can take advantage of a grant program, property and sales tax exemptions, net metering, and a program that pays consumers for each kilowatt hour their panels generate for the first 15 years.Maryland. The state offers a $1,000 rebate to install a system, net metering, property and sales tax exemptions, tax credits for energy storage, and a solar renewable energy credit program allowing homeowners to sell solar credits for cash to their utility companies.The bottom lineAs with any major home improvement project, taking the time to explore the pros and cons—and to understand the options available to you—can help you save money and ensure you get the best deal. Get bids from vetted solar installers so you can compare multiple quotes.

　　If you find solar panels don’t make economic sense, there may be other ways you can benefit from solar energy, such as community solar projects, which allow you to get credits toward your electricity bill. To cut your electricity costs overall, evaluate how you use energy, buy energy-efficient appliances, and weatherize your home.