New Mexico is one of the sunniest states in the country, which makes solar panels more productive there than in many other regions of the United States. The state offers several tax incentives for solar energy systems, which improves the return on investment for homeowners to switch to solar power.
In this article, the MarketWatch Guides Team will discuss all the solar incentives you can find in the “Land of Enchantment.”
State Solar Incentives
The New Mexico state government offers three financial incentives for taxpayers who convert to solar:
- Solar Market Development Tax Credit (SMDTC)
- Sustainable Building Tax Credit (SBTC)
- Property tax exemption
As of 2023, New Mexico doesn’t offer solar rebates or sales tax exemptions. However, the tax incentives alone can save you hundreds of dollars.
Solar Market Development Tax Credit (SMDTC)
Incentive Value: 10% of solar system costs up to $6,000
Frequency: Single-use
The New Mexico solar tax credit is the Solar Market Development Tax Credit (SMDTC) and is managed by the Natural Resources Department. It works this way:
- After installing solar panels or a thermal solar system, you can claim 10% of project costs as a state tax deduction, up to a maximum amount of $6,000.
- This incentive is available for residential, commercial, industrial and agricultural solar installations.
The New Mexico solar tax credit is available through 2032, but the annual budget is limited to $12 million. This means you have a higher chance of getting the incentive if you submit the application early in the calendar year. The tax credit was awarded to 3,785 solar installations in 2022, and the average incentive was $3,055 per project.
To give you an idea of how this saves you money, let’s say you install a 6-kW home solar system in New Mexico for $14,280. The 10% state credit is $1,428. Add in the 30% federal tax credit of $4,284, the total incentive is $5,712. In other words, you recover 40% of your solar power investment in less than a year.
Sustainable Building Tax Credit (SBTC)
Incentive Value: Up to $6.50 per square foot for sustainable design
Frequency: Single-use
The New Mexico Sustainable Building Tax Credit (SBTC) is divided into two sets of incentives:
- Tax credits for energy efficiency in existing homes
- Tax credits for sustainable new residential construction and commercial renovation
Unfortunately, solar panels aren’t included in the list of eligible products for existing homes. However, the tax credit is available for electric vehicle chargers and ENERGY STAR heat pumps, which can use the electricity generated by solar panels. In the case of new construction, the SBTC is available for homes that meet any of the four following requirements:
- Build Green NM Gold or Emerald
- LEED Residential Gold or Platinum
Solar panels can help you qualify for either certification by reducing the Home Energy Rating System Index of your new home. However, you can’t qualify with solar panels alone because both certification systems cover multiple areas of home performance.
The SBTC has a budget of $7.15 million. It’s not a solar-only incentive, but solar panels help you qualify when you combine them with other energy conservation measures.
Property Tax Exemption for Residential Solar Systems
Incentive Value: Varies depending on local property taxes
Frequency: Continuous
New Mexico enacted a property tax exemption for residential solar systems in 2010, which means you don’t get taxed for the increase in home value after going solar. If you own a home with a $300,000 assessed value and a solar panel installation increases its value to $320,000, your property taxes will still be calculated for a home value of $300,000.
New Mexico Net Metering Explained
New Mexico has a statewide net metering policy for renewable energy systems. All regulated utility companies must give you credit for excess solar generation sent to the grid, and the credit must be calculated at the same energy price they charge you.
If the electricity output of your solar panels exceeds your consumption and your system is not larger than 10 kW, utility companies have two options:
- Paying you for excess solar generation.
- Rolling over your solar credits to the next month.
If the utility offers a cash payment, excess solar generation is priced at their avoided cost, not the full retail price. If they roll over your solar credits, there is no cash payment. However, your excess generation is carried over to the next month at full price.
How To Enroll in Net Metering
Net metering requirements for homeowners vary by utility. You must follow a technical manual with interconnection requirements and your solar PV system must meet UL 1741 and IEEE 1541 standards.
PNM, Xcel Energy and El Paso Electric have some of the largest net metering programs in New Mexico. You can check the technical details of each program on their websites:
- PNM Customer Solar Program
- Xcel Energy Net Energy Metering
- El Paso Electric Distributed Generation Program
Federal Solar Tax Credit
The federal solar tax credit, also known as the Clean Energy Investment Tax Credit (ITC), is a nationwide incentive for solar energy property owners. If you install solar panels for your home or business, you can deduct 30% of project costs from your next tax declaration. This benefit was to be removed in 2024, but the Inflation Reduction Act extended the incentive through 2034.
In New Mexico, the typical cost of a solar power system is $2.38 per watt of installed capacity. This means you can expect to pay $14,280 for a 6-kW solar panel system, but you get a $4,284 tax credit and your net cost gets reduced to $9,996. With New Mexico’s local tax incentives, the final cost of a solar installation is even lower.
You can claim the solar federal tax credit by submitting Form 5695 with your tax return the year after you install your system. We strongly recommend having a certified public accountant handle the tax return for you to make sure you get full credit for your new system. You can claim the federal tax credit if you pay for your solar panel system in cash or use a loan. If you sign a solar lease or power purchase agreement (PPA), the solar provider owns the photovoltaic system and receives the incentive.
Estimated Solar Savings in New Mexico
New Mexico is one of the sunniest states in the country, which means that each solar panel generates more electricity during the year than those in less-sunny locales. Look at the state’s power-generation level here in the World Bank Global Solar Atlas, which displays solar resources for any location.
A 6-kW home solar system can generate more than 11,000 kilowatt-hours (kWh) per year in Santa Fe or Albuquerque, thanks to so much sunshine. You can expect to pay $14,280 for a system of this size, but the 30% federal tax credit and the 10% state tax credit reduce your installation costs to only $8,568.
New Mexico has an average electricity price of 14.03 cents/kWh, according to the latest data from the U.S. Energy Information Administration. Considering this tariff, 11,000 kWh of solar generation can save you up to $1,543 per year.
With a net cost of $8,568 and $1,543 in electric bill savings, the New Mexico solar energy system in this example yields an estimated payback period of 5.6 years. The best solar panels come with a 25-year product warranty, much longer than their payback period.
Top Solar Installers in New Mexico
To make the process of selecting a solar installer easier, we have compiled a list of the top companies in New Mexico based on factors such as cost, financing options, brand reputation, and warranties using our comprehensive rating methodology. We recommend getting a quote from at least three of the providers below before making a decision.
The listings that appear are from companies from which this website may receive compensation, which may impact how, where and in what order products appear. Not all companies, products or offers were reviewed in connection with this listing.
The Bottom Line
New Mexico offers a generous state tax credit for solar panels, which you can combine with the federal tax credit for a total incentive of 40%. The state also has abundant solar resources, and photovoltaic systems are more productive than in many other regions of the country. And solar panels can achieve a payback period of less than six years.
You will achieve the best results with solar panels when they are properly sized based on your home consumption and local sunshine conditions. The best solar companies have experience across all states, and they can calculate the ideal system size for your home in New Mexico.
Frequently Asked Questions About New Mexico Solar Incentives
Yes, New Mexico’s sunlight produces a lot of energy, plus you get a 10% income tax credit. Thanks to these benefits, solar panels achieve a payback period of less than six years.
Yes, New Mexico has a net metering policy. The exact requirements depend on your utility company, but you will get credit for excess solar generation sent to the grid.
You can expect to pay $2.38 per watt of capacity, before subtracting incentives. This means the typical price of a 10-kW solar energy system is $23,800.
The upfront cost of your solar panel system is much lower after subtracting the 30% federal ITC and the 10% state tax credit. For a 10-kW system with a price of $23,800, you get $9,520 in combined tax credits. That makes the out-of-pocket cost only $14,280.
Solar photovoltaic and solar thermal systems qualify for a tax credit covering 10% of project costs up to a maximum of $6,000.
Other Home Service Resources From MarketWatch Guides
Gain insight into top-rated providers and affordable choices when it comes to necessary home services.
- Compare Best Pet Insurance Companies
- Leading Home Warranty Providers
- Top National Gutter Guards
- Evaluate Top Window Brands
- Evaluate Best Solar Companies
- Affordable Home Warranty Providers
- Best Interstate Movers
