The solar tax credit is scheduled to end at the end of 2016 for residential and commercial properties…. This is a 30% federal investment tax credit for solar energy systems. It’s a tax policy that has played a vital role in creating good, American jobs, lowering energy bills for consumers, increasing U.S. global competitiveness, energy security, and reducing pollution from fossil-fuel based energy sources. The company or person that installs, develops or pays for the power project uses the credit (a homeowner applies it to his/her income taxes). This Investment Tax Credit (ITC) has been one of the most important federal programs to support the development of solar power in the U.S.; it has driven an amazing job growth sector, with over 20% growth per annum the fastest employment growth of any industry in our country! The solar industry now employs more that either the steel or coal industries.
So if you are considering the purchase of a solar power system, get your equipment together before the end of next year. It would be helpful to also ask your legislators to extend the ITC further, and continue the growth of the solar industries; as time goes on, component efficiencies have increased and costs for consumers continue to go down. Unfortunately, there is no clear consensus among legislators that the expiration date should be extended.
We at Oasis Montana feel that our fledgling solar industry will survive the expiration of the tax credit, if that comes about but we also feel it is unfair to continue to massively subsidize other energy sectors at the same time! A gradual reduction of the solar tax credit would be a good idea but only AFTER we cut the more than $4B/year in fossil fuel tax incentives. One would think after 100 years of production the fossil fuel industry would be mature enough and could exist without the tax incentives…especially considering they are the most profitable corporations in the world.
To see what incentives you may qualify for, visit www.dsireusa.org; incentives vary from state to state, and some utilities may offer grants in your particular are.
What is the Federal Solar Tax Credit?
It is tax time so whether you are loving or hating Uncle Sam, it is a good time to highlight the Solar Tax Credit. Converting a home to solar electricity has enormous savings and environmental benefits. And the 30% Federal Solar Tax credit only sweetens the deal. When you look into solar for your home here are 5 tips about the solar tax credit that everyone should know.
(This is general information only, please consult with a tax professional before making any tax credit related decisions.)
1. Solar Tax Credit is only available when the solar power installation is purchased
To claim the 30% solar tax credit, the solar power system must be purchased. The IRS is clear that any portion paid using subsidized energy financing, (i.e leases or power purchase agreements, PPAs) cannot be used to figure energy property credit. Solar Leases and Solar PPAs are considered subsidized energy financing, and they get the tax credit because they retain ownership of that solar power system.
When researching home solar power and considering solar financing options, be sure to review all options including cash, loans (private and HELOC), and other lines of credit. Viewing multiple option and their tax credit implications is the best way to discover how the tax credit will help yield the best price and long-term savings.
2. Calculate the 30% Solar Tax Credit from Net System Price
The solar tax credit is calculated as 30 percent from the net system price. The net price is the purchase price for equipment and labor after any rebates, discounts, promotions, or other state incentives have been deducted. As with most tax credits, the IRS does not allow double-dipping.
Here is an example to show net price calculation:
- Gross price ex: $20,000
- Less local rebate: $600
- Less installer promotion: $500
Net solar price to report to the IRS: $18,900
For specific IRS guidance on the renewable energy tax credit see Form 5659, Residential Energy Credit.
(Talk to a tax professional about tax credit implications on your tax return)
3. The Solar Power Approval Date Determines The Tax Credit Year
The solar tax credit can be claimed for the tax year that the system is installed and approved to operate. To be safe, it is best to use the date that the utility interconnection occurs, not just the date the installation finishes. The interconnection inspection by the utility authorizes the system to be turned on and start generating electricity.
The IRS language is slightly unclear, but after 30 years in the solar business we have learned to be conservative on this date. This question typically arises when solar projects start later in the year (think September/October). Due to several factors like permitting, weather and scheduling, projects can be unintentionally delayed during winter months. Get ahead of weather and potential delays, and start research and solar bids in the spring and summer.
4. The IRS Allows Carryover on the Solar Tax Credit
In the event that a homeowner does not have the tax appetite to redeem the full 30 percent tax credit in a single calendar year, the IRS, as of 2014, allows a carryover in order to help tax payer monetize as much of the solar tax credit as possible. (Talk to a tax professional about tax credit implications on your tax return.)
5. The Solar Tax Credit is Available Through 2016
The legislation governing solar tax credit is set to expire in 2016. The 30 percent, uncapped solar tax credit was passed as part of the 2009 American Recovery and Reinvestment Act. The tax provision is set to expire in 2016, unless congress revisits this provision. As energy prices continue to increase, solar is a great option today, and taking advantage of this awesome solar tax credit makes now the time to check out converting to home solar power.
Check out a National Geographic blog post providing a general forecast about the future of the solar tax credit:
Bottom line is that today solar installation prices are very affordable and for the next two years most homeowners basically take an additional 30 percent off their taxes. Now that’s a reason to love Uncle Sam.