Federal and state incentives — what applies

The federal Investment Tax Credit (ITC)

The residential clean energy credit, commonly called the ITC, allows homeowners to deduct 30% of the cost of qualifying solar energy property from their federal income taxes. Established under § 25D of the Internal Revenue Code and extended through 2034 by the Inflation Reduction Act, it's the most significant financial incentive for residential solar in the United States.

For a typical rooftop solar installation costing $20,000, the 30% ITC reduces the net cost by $6,000. The credit is non-refundable — it reduces tax liability, but any excess credit beyond the tax owed can be carried forward to future tax years.

The ITC's qualifying requirements were designed with rooftop, grid-connected solar in mind. The credit applies to "solar electric property" — equipment that generates electricity for use in a home. The home must be the taxpayer's residence, and the system must be "placed in service" during the tax year the credit is claimed.

Does the ITC apply to plug-in solar?

This is the key question, and the honest answer is: we don't know for certain, and the IRS hasn't said.

The argument that the ITC applies: a plug-in solar system is solar electric property that generates electricity for use in the taxpayer's home. The ITC statute (§ 25D) doesn't require grid connection or net metering eligibility; it requires that the system generate electricity and that the taxpayer use it in their residence. A UL 3700-certified plug-in system does exactly that.

The argument that it doesn't: the IRS's longstanding guidance on the ITC has focused on systems with utility interconnection agreements and net metering, because that's what existed when the credit was designed. Plug-in solar systems — which are deliberately excluded from grid interconnection under HB 395 — are a new category that IRS guidance hasn't addressed. Some tax practitioners argue that a non-grid-connected system doesn't qualify as "solar electric property" under the credit's administrative interpretation, even if it qualifies under the plain statutory text.

A third complication: the ITC is available only to property owners, not renters. Even if a plug-in system qualifies under § 25D, renters who install under HB 395 can't claim the credit because they don't own the property where the system is installed. The ownership requirement eliminates the ITC for most HB 395 plug-in installations entirely.

For homeowners who own their property and install a plug-in system, the ITC question is worth discussing with a tax professional. Some practitioners are advising homeowner clients to claim the credit, citing the plain statutory language of § 25D. Others are advising caution until IRS guidance addresses the plug-in category directly. As of mid-2026, no IRS private letter ruling or technical advice memorandum specifically addressing plug-in solar under § 25D has been published.

Virginia state programs

Virginia does not currently have a state income tax credit specifically for residential solar installations. The Virginia Solar Energy Development and Energy Storage Authority (VSEDA) administers some incentive programs, but these are primarily focused on utility-scale and commercial solar, not residential plug-in systems.

The one state-level financial benefit that clearly applies to plug-in solar is Virginia's sales tax exemption for solar energy equipment. Under Code of Virginia § 58.1-609.3(17), solar energy equipment, devices, and systems used for producing energy from sunlight are exempt from Virginia's retail sales and use tax.

A compliant HB 395 plug-in solar kit — panels, microinverter, mounting hardware, cables — qualifies for this exemption. On a $1,000 system, the 6% Virginia sales tax exemption saves approximately $60. Not transformative, but real. Some retailers apply the exemption automatically for qualifying products; others require the buyer to present a certificate of eligibility from the Virginia Department of Taxation.

Utility programs and rebates

Dominion Energy and Appalachian Power Company both offer demand-side management programs — rebates, incentives, and efficiency programs for residential customers. Neither currently has a rebate program specifically for plug-in balcony solar, as of mid-2026.

Dominion's IncentivePrograms portfolio as of 2026 includes rebates for smart thermostats, heat pumps, EV chargers, and insulation. APCo's Watts for Wisdom and WattWatcher programs similarly focus on efficiency and demand response. Neither program has a line item for plug-in solar equipment.

This may change as plug-in solar adoption increases and utilities see meaningful behind-the-meter generation data in their distribution planning. Some utility programs in other states with more mature plug-in solar markets have begun including small incentives for certified plug-in solar installations. Virginia utilities are watching those developments.

Low-income and affordable housing programs

Several federal and Virginia programs help lower-income households access clean energy, and some of these can benefit HB 395 plug-in solar adopters indirectly.

The federal Weatherization Assistance Program (WAP), administered in Virginia by the Department of Housing and Community Development, provides energy efficiency improvements to income-qualified households. WAP primarily funds insulation, air sealing, and HVAC upgrades — not solar equipment — but it can reduce the baseline consumption against which solar savings are calculated, improving the plug-in system's proportional impact.

The Inflation Reduction Act created a separate Low Income Communities Bonus Credit under § 48(e) of the Internal Revenue Code, which provides enhanced ITC credits for qualifying solar projects in low-income communities. This credit applies to solar facilities, not to individual residential plug-in systems, and is available primarily to developers of community solar or multi-family residential solar projects.

Virginia's Department of Housing and Community Development administers some programs for affordable housing solar installations, primarily targeting housing authorities and nonprofit affordable housing developers. Residents of affordable housing who want to install plug-in solar under HB 395 should ask their housing provider whether any applicable programs exist for their building.

Planning without incentives: what the math looks like

Given the uncertainty around the ITC and the absence of state incentives for plug-in solar, the most conservative — and most reliable — financial planning for an HB 395 installation assumes no incentives beyond the sales tax exemption.

On that basis, a $1,000 system (after the ~$60 sales tax exemption) producing roughly 1,200 kWh per year saves a Dominion customer approximately $150 per year at current rates. The payback period works out to about 6–7 years. That's a reasonable return on a product that's also portable and doesn't require any contractor involvement.

If the ITC ultimately applies and a homeowner can claim it, the $300 credit on a $1,000 system reduces the effective cost to $700 and the payback period to about 4–5 years. But that's a bonus to plan for rather than a baseline to count on until IRS guidance clarifies the question.

Common questions

Can I claim the ITC if I co-own the property with my partner?

If both partners are on title, either or both can claim the credit proportional to their ownership share (or one partner can claim the full credit if they paid for the system). Co-ownership doesn't disqualify the credit; the property-owner requirement is satisfied by joint ownership. This is a detail to discuss with a tax professional given the ITC uncertainty for plug-in systems.

Does the sales tax exemption apply if I buy the system on Amazon?

Virginia's sales tax exemption applies to qualifying solar energy equipment sold in Virginia, including online sales delivered to Virginia addresses. The key is having documentation of the equipment's qualifying status. For major online retailers, the exemption may need to be claimed separately through the Virginia Department of Taxation rather than at the point of sale. Keep the receipt and product documentation.

Is there any benefit to waiting for potential future incentives?

The Virginia incentive landscape for plug-in solar is most likely to improve, not deteriorate, as the technology matures and HB 395 adoption increases. But the value of the savings foregone while waiting typically exceeds the present value of a future incentive that may not materialize. The math usually favors installing now rather than waiting on potential future programs.

Will the ITC percentage drop after 2034?

Under the Inflation Reduction Act as currently written, the residential ITC remains at 30% through 2032, then steps down to 26% in 2033 and 22% in 2034 before expiring. Whether plug-in solar will qualify for any version of the credit by 2032 depends on IRS guidance that hasn't yet been issued.

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Sources: Internal Revenue Code § 25D (Residential Clean Energy Credit); Inflation Reduction Act (Pub. L. 117-169, 2022); Code of Virginia § 58.1-609.3 (Sales tax exemption for solar equipment); Virginia Department of Housing and Community Development — Weatherization Assistance Program; IRS Notice 2023-29 (Energy Community Bonus Credit); Dominion Energy IncentivePrograms catalogue (2026); APCo Watts for Wisdom program documentation (2026).

This article is for general information and does not constitute tax or financial advice. Consult a tax professional regarding the federal investment tax credit and your specific situation.

Last updated: July 31, 2026

Related Reading

• Calculate net installation costs after credits in our guide to system pricing and payback calculations.
• Compare tax credit impacts between system types in our plug-in vs rooftop financial comparison.
• Read about retail availability of certified hardware in commercial availability of UL 3700 systems.